? Collapse o 
Capitalism 

HERMAN CAHN 



Class. __..ViCS_.4i 
Rnnk 'O 3 



THE COLLAPSE OF 
CAPITALISM 



By 

HERMAN CAHN 

ACTHOE OF "CAPITAL TODAT" 



CHICAGO 
CHARLES H. KERB & COMPANI 
1919 





80 



CONTENTS 



Chapter Page 

Introduction 5 

I. Socialist Difference of 

Opinion 11 

II. Stagnant Economics 17 

III. The Fatal Flaw of Capitalism 33 

IV. Money of Account 49 

V. The Social Insolvency 66 

VI. The Money Source for the 

War Loans 84 

VII. The War, Birth Deliverer of 

Socialism 101 



INTRODUCTION 



SOME of our best informed American 
socialists evidently think it good pol- 
icy to contend that the European so- 
cialists tried to prevent the war, but 
unfortunately were powerless to do so. 
No doubt this is mainly intended as an 
excuse for the German socialists who 
were considered the advance guard of the 
International until the outbreak of the 
war. Those who make this contention, 
so much at variance with the facts, be- 
lieve that the socialist movement will go 
on after the war, much the same as be- 
fore and for an indefinite time. Their 
purpose is to re-establish the Interna- 
tional and in order to put the movement 
on the old track again, to prepare by 
bringing about a general reconciliation of 
the dissenting elements. 

Lassalle has said that "it is futile to try 
to be cunning in great things," and we 
may add that this maxim is true no matter 
how well intentioned the cunning might 
S 



6 THE COLLAPSE OF CAPITALISM 

be. There is never anything as beneficent 
on great occasions as the truth. 

At least definitely a year before the 
outbreak of the war, but more probably 
for a number of years past, the Interna- 
tional betrayed a lack of coherence. 
When that great catastrophe came, it re- 
vealed, as could plainly be foreseen, any- 
thing but that unity of action which was 
logically to be expected of a party priding 
itself on its ability to judge current 
events scientifically and to foretell future 
events by its understanding of present 
causes. If the science on which the party 
was based has not demanded important 
modification, something to which all sci- 
ences, especially that of economics, are 
subject ; if a cleavage has not taken place 
within the working class, dividing it into 
social groups with antagonistic interests ; 
and if the length of time which may seem 
necessary for an expected event to mate- 
rialize does not influence men's present 
and practical, even if not theoretical, 
attitude in regard to such an event — then 
there is no explanation for the divergence 
of thought among those who style them- 
selves socialists and for their failure to 



INTRODUCTION 



7 



act as a unit. At that critical moment 
united action of the International would 
not have been pacifistic, but revolution- 
ary, while at present the demand for 
"peace by negotiation/' or dickering, is 
purely pacifistic. 

In the United States the socialist move- 
ment was too weak to be put to the real 
test of action, instead of mere declara- 
tions. But even here differences of opin- 
ion arose. This is not to be understood 
as referring at all to the handful of former 
party members who joined the jingo mul- 
titude — fiction writers, rich of imagina- 
tion, but sorely poor in knowledge ; writ- 
ers for popular magazines who never 
were, nor needed to be, particular about 
their facts ; sentimentalists graduated 
from charitable settlements ; professors 
and other collegians handicapped by their 
college training, etc., etc. All these ele- 
ments were liable to flop at any time. No, 
we refer to differences of opinion between 
real Marxian socialists. 

The immense majority of these have 
to the best of their ability opposed our 
entrance into the war, and since this step 
was simply irresistible, they have since 



8 THE COLLAPSE OF CAPITALISM 

been advocating an early peace. What 
evidently has determined their attitude is 
the old socialist ideal of universal peace, 
an ideal which, however, cannot be real- 
ized in an antagonistic form of society 
and of which the realization must be de- 
ferred until that form of society has 
ceased to exist. 

There was, on the other hand, a small 
number of socialists in our midst who, 
with remarkable intuition, saw in this 
world war from the very start an act of 
suicide on the part of capitalism. After 
the die had been cast it was a mistake, 
so they felt, to try to prevent capitalism 
from accomplishing its own destruction. 
They could not, in conscience and as hu- 
mane men, help the consummation along, 
but they could advise keeping our hands 
off. Had their advice received any atten- 
tion, many a useless sacrifice to mob law 
would have been spared. True, these 
sacrifices are a mere trifle compared to 
the untold suffering caused by the war. 
This suffering went to the hearts of the 
few dissenters no less than it did to the 
hearts of the pacifists, but the former 
recognized that it was the inexorable 



INTRODUCTION 



9 



price which humanity had to pay for its 
final moulting from animaldom. 

The word "intuition" has been used in 
the preceding paragraph with due delib- 
eration. Although the previsions of these 
few fine-sensed socialists are now rapidly 
coming true in a general way, yet it is a 
fact that they never stated their reasons 
clearly or convincingly. Certainly the 
decisive reason was never mentioned by 
them. That is a matter of post-Marxian 
economics which this little book under- 
takes to submit in brief form. Economic 
evolution plays, in our time, a more de- 
cisive part than in the past, and even more 
decisive than we could have thought pos- 
sible only a few years ago. The influence 
of popular intelligence on social revolu- 
tion is reduced to its lowest expression — 
Hobson's choice. The people, when the 
moment shall have come, will do that 
which they must do, that which they can- 
not help doing. 

Basing ourselves on the economics of 
Marx, we shall find by analysis of the 
most profound change which has super- 
vened in the economic world since his 
time, that a new force has grown up 



10 THE COLLAPSE OF CAPITALISM 

which no longer leaves the downfall of 
capitalism to the vague future, or its 
earlier ending to the spread of a high 
degree of intelligence among the real 
proletariat, but makes the coming of that 
great event a matter of figures and en- 
tirely independent of even the collective 
will of men. The war has enormously 
hastened the development of this force, 
and the catastrophe is imminent. 

Therefore, godspeed to the blind tools 
of history, who are hastening the destruc- 
tion of the war-breeding class state ! 



THE COLLAPSE OF 
CAPITALISM 

CHAPTER I 
Socialist Differences of Opinion 

HAS it escaped the reader that a com- 
plete change of mind has taken 
place among the leaders of American 
capitalism during the past year ? Do you 
remember how not so long ago we were 
in high glee over the billions of profit we 
were gathering in furnishing to war the 
necessaries of his business ? What an im- 
petuous customer he was, caring only for 
early delivery, and not for price at all. 
He did not have to make a living selling 
the goods at a profit; his business was 
bankrupt from the start. How our for- 
eign debt was wiped out either by pur- 
chase of the securities or by receiving 
them as collateral for our loans? How 
our bank reserves were swelled by ship- 
ments from Europe of gold, enabling the 
banks to inflate their loan accounts to the 
tune of seven times as much? We had 



12 THE COLLAPSE OF CAPITALISM 

ceased to be a debtor nation and had be- 
come a creditor nation instead. We were 
by far the richest country, and Europe's 
misfortune would surely afford us a still 
greater lead. Europe's South American 
investments of $6,000,000,000— ship- 
wrecked by Europe's inability to further 
finance the enterprises — would fall into 
our lap at ten cents on the dollar. We 
started to invest in China, that country 
of fabulous possibilities of exploitation. 
New York was going to be the financial 
center of the world, instead of London. 
And we were going to have the necessary 
number of battleships to protect our em- 
pire, for "in international finance there 
are no receiverships, unfortunately," as 
Mortimer Schiff said, with tears in his 
eyes, in addressing a bankers' meeting, 
"we still need battleships." 

Then the change of mind already al- 
luded to took place. The mood changed. 
There was a transition from the exultant 
strains in the major key to discordant 
tones of alarm. The chorus voicing the 
hope that American capital was to exploit 
the world has now become mute. In- 
stead, posters show us Columbia with a 



SOCIALIST DIFFERENCES OF OPINION 13 

frown of anguish, and the epigraph, "You 
buy a liberty bond lest I perish/' And 
our Secretary of the Treasury, son-in-law 
of our President, says that, unless we 
sacrifice money without stint, we stand 
to lose 125,000 millions of dollars. Why 
just that sum? Surely, it is not the result 
of calculation. It so happens that that 
sum represents half of the lately-men- 
tioned estimates of our national wealth, 
and the possibility of the loss of the cap- 
ital accumulation of a generation should 
suffice to send cold shivers down the 
backs of the possessors of our national 
wealth and to produce the necessary state 
of mind. 

Of course, he might have given the full 
and true weight to his warning by saying 
that we stand to lose every dollar of our 
wealth. But that would have let the cat 
out of the bag by inducing the question 
how that were possible, unless the very 
existence of capitalism were at stake. It 
would have led to too much thinking, and 
you cannot make war that way. 

Evidently the light of a new economics 
has broken in on the minds of the direct- 
ing group of the capitalist class. Has, 



14 THE COLLAPSE OF CAPITALISM 

perhaps, Mr. Theodore Price, the editor 
of Commerce and Finance, privately 
made it clear to them what o'clock it is? 

And so, in order to still prevent, if pos- 
sible, the completion of capitalism's sui- 
cide, we had to endeavor to end the war. 
We forgot our former fear of sudden 
peace. We began to see the peril of con- 
tinued war and it was becoming evident 
that there was no possibility of peace ex- 
cept through the victory of one side. So 
we thrust all our war profits into the 
war's furnace and duplicated the sum at 
once out of our original capital — ten bil- 
lion dollars in all. In addition, we pre- 
pare to take a million men out of 
productive life. 

Such is the emergency as seen at least 
by the inner circle of the capitalists who 
mould "public opinion/* In the face of 
this the socialists hold differing views. 
I hope that nobody misunderstands me 
as referring at all to the handful of novel 
writers, poets and other literati who re- 
cently said goodby to us. They are long 
on imagination, but particularly short on 
knowledge. Judge of their fund of the 
latter, if perhaps the solidest among them, 



SOCIALIST DIFFERENCES OF OPINION 15 

formerly a director of a school of social 
science, in answering a question of a 
reader in a recent issue of the Appeal to 
Reason, says that no doubt there would 
be money, banks and interest under 
socialism. 

The International broke down from a 
lack of unity between the national so- 
cialist parties in their world outlook. 
Especially the main contingent, the Ger- 
mans, separated themselves more and 
more on the question of war from the 
British and French, led by Hardie and 
Jaures. The attitude of the Germans, and 
their ultimate defection, is not to be ex- 
plained by national character or national 
training, but by economic development. 
But this can more adequately be discussed 
in the next chapter after having taken a 
closer look at the present state of eco- 
nomic thought among the workers. The 
defection of the Germans, interpreted as 
baseness and treason by most French and 
British socialists, so outraged the latter 
that they became supporters of their gov- 
ernments for war a outrance. However, 
there exists now in every country a con- 
siderable socialist element which holds 



16 THE COLLAPSE OF CAPITALISM 

with the American socialist party that the 
interests of the international proletariat 
demand immediate peace. International 
socialist action at the present time in 
favor of peace cannot be viewed in the 
same light as similar action might have 
been before the war. At that time action 
in favor of peace was revolutionary action 
against capitalism. Today such action 
would try to rescue capitalism. 

In the face of one of the most stupen- 
dous facts of all history the socialists are 
at sea, left without guidance by the 
scientific socialism known to them. 



CHAPTER II. 
Stagnant Economics. 

NOBODY can put a higher estimate on 
Marx's work than the writer of this 
book, I have said elsewhere that the 
human race has, perhaps, not produced a 
man of equal power of analysis and 
consecutive thinking in the thousands of 
years since Aristotle. 

A professor of economics at a New 
England university, writing in the Inter- 
collegiate Socialist, describes my devo- 
tion to Marx as "almost touching." It 
must seem all the more touching since, 
according to the professor, every word 
that Marx wrote on economics was false. 
Being a very ignorant man on the par- 
ticular subject of economics, he does not 
realize that he says just that and no less. 
But it throws a peculiar light on the 
understanding of Socialism in some quar- 
ters that neither the editor of the Inter- 
collegiate Socialist, nor any of its readers, 
questioned the professorial authority. 

Yet all sciences are subject to change, 
and none changes as continually and 
17 



18 THE COLLAPSE OF CAPITALISM 

rapidly as economics. At one time an 
accepted definition of mammals became 
insufficient in consequence of the discov- 
ery on a new continent of egg-laying 
mammals. Old geographies describe as 
seaports cities now miles from the coast. 
What is permanent in Marx is his intro- 
duction of the methods of science into 
economics and his analysis of the eco- 
nomic phenomena existing in his time. 
As no error has ever been proven against 
these analyses, they must form the 
groundwork for the study of any subse- 
quently arising economic phenomena. 
But as far as Marx's forecast of the 
future, based on the economic conditions 
in his time, is concerned, it is subject to 
modification by later economic develop- 
ments. And, indeed, developments of 
overshadowing importance have taken 
place since Marx, which will be briefly 
outlined in the next chapter. If economic 
development has made a great stride for- 
ward and Marxists remain under the 
impression that nothing essential has 
changed, then their science becomes de- 
tached from the living present and in- 
capable of understanding it. Marxism 



STAGNANT ECONOMICS 19 



thus becomes atrophied and reduced to 
mere scholasticism. 

The final conclusion derived from 
Marx's analysis of the life processes of 
capitalist society is that their inner con- 
tradictions prove this form of society to 
be only transitional, not a final form. The 
operation of these processes has the 
double effect of increasing the difficulties 
of the present form of society and pre- 
paring the technical conditions for a 
higher, a perfectly social form. The se- 
quence of thoughts may be summarized 
briefly as follows : 

Free competition, a life principle of 
capitalism, forces the individual capital- 
ist concern to strive ever for a lower cost 
of production. This purpose is attained 
mainly by improving the means of pro- 
duction and enlarging them to any scale 
called for by new scientific discoveries 
and the development of technique. The 
mass of products is thus constantly in- 
creased. But capitalist production is car- 
ried on primarily for profit. The profit 
can only be realized by the sale of the 
products. But inasmuch as the workers, 
the great and ever-growing mass of the 



20 THE COLLAPSE OF CAPITALISM 



population, receive in the form of wages 
only part of the product value,* the con- 
tradiction between the irresistibly grow- 
ing mass of commodities and the condi- 
tions for realizing the profit by their sale 
becomes ever greater. On the one hand, 
the system tends to frustrate its own pri- 
mary purpose ; on the other, it inflicts un- 
employment and privation on the work- 
ers, who are thus forced to end the 
system. 

As a prognostication based on the 
working of the economic factors in Marx's 
time, the foregoing is as logical today as 
when it was first given to the world by 
him. And that it would prove true ulti- 
mately on its premises alone cannot be 
questioned, in spite of certain obstacles 
which have since appeared and which re- 
late to the important question of time — 
the time necessary for capitalism to reach 
its phase of decay and untenability. Time 
is apt to affect any problem of human 
affairs very materially. A later economic 
phenomenon might arise, and, as I will 



•I have considered it of importance to prove in 
"Capital Today," from official figures, that this part 
is not large, but exceedingly small — no more than 20 
to 25 per cent. 



STAGNANT ECONOMICS 21 



show, actually has arisen, promising the 
social transformation in a much shorter 
time and rendering the earlier prognosti- 
cation obsolete. 

The obstacles above referred to are, or 
rather were before this revolutionizing 
war: 

(1) Modern imperialism, signifying the 
almost unlimited expansion of capitalism. 

(2) As a result of this determining de- 
velopment, a changed ideology of certain 
elements among the workers and of the 
intellectual proletariat. 

Modern imperialism aims at the politi- 
cal control of all backward countries by 
the great capitalist governments for the 
purpose of securing to their respective 
capitalists the safety of the industrial en- 
terprises which these may establish in 
those countries. The control is to insure 
to the home industries the necessary sup- 
ply of raw material and monopolistic mar- 
ket for products exported partly for sale, 
but mainly for capital investment as means 
of production. This exportation of sur- 
plus capital — not of loan capital but of 
industrial capital in the form of commodi- 
ties — appeared to be capable of almost 



22 THE COLLAPSE OF CAPITALISM 

boundless extension, and promised a long 
lease of life to capitalism. China alone is 
ready tomorrow to absorb a capitaliza- 
tion of a hundred billions of dollars. In 
face of such possibilities Marx's forecast 
loses much of its force. 

About the time when Marx's "Capital" 
appeared, the United States, having just 
overcome the agrarian South, emerged 
from colonial conditions and started on 
its wonderful career as an industrial na- 
tion. Our capitalists have now become 
the richest in the world, and their annual 
profit accumulations have attained a vol- 
ume which makes investment on a profit 
basis — not on a mere interest basis — dif- 
ficult at home. The railroad system is 
completed and is paying for improved 
equipment, as are the trusts, largely out 
of profits. More recently the nascent 
automobile industry called for new capi- 
tal. Since then there has come no impor- 
tant call for capital on a profit basis, such 
as our capitalists have been accustomed 
to. They must look abroad and have 
their eyes on Latin America and China. 

The great rise of capital in Germany 
dates from about the same time and has 



STAGNANT ECONOMICS 23 



been equally prodigious. It received its 
impetus partly from the French war in- 
demnity, but especially from the protec- 
tive tariff established in 1878. Being a 
small country, with few natural resources, 
Germany has been aiming to control back- 
ward countries to insure the necessary 
supply of raw materials for her trusts and 
monopolistic markets for their products. 
Everywhere she encountered England, 
either in prior possession or otherwise in 
opposition. 

The industrial advance of Germany was 
accompanied by a marked improvement 
in the condition of her working class, to 
some extent fostered from above by "so- 
cial legislation." Emigration almost 
ceased and was balanced by immigration 
of Poles and Italians. The type of the 
German worker before the great indus- 
trial rise was a man wearing a blue blouse 
and a cap, with a clay pipe in his mouth. 
Ten years ago the writer saw the railway 
platform of a large city densely crowded 
with gentlemen wearing natty woolen 
suits, derby hats, carrying leather hand- 
bags and smoking cigars. On inquiry he 



24 THE COLLAPSE OF CAPITALISM 

learned that they were workingmen going 
to their homes in the suburbs. 

The Socialist movement in Germany 
antedates big capitalism and trade union- 
ism. The earlier Socialists were enthusi- 
astic, aggressive and somewhat prone to 
violence. But their mood changed grad- 
ually. For years past many voices were 
heard in their party condemning its in- 
aggressiveness and growing conserva- 
tism. In international congresses the 
Germans were the stumbling block to 
common action against militarism and 
war. But the most remarkable historical 
fact is that a year before the outbreak of 
the war, almost at the same moment when 
the French Socialists under Jaures' lead- 
ership came out of a victorious electoral 
campaign which resulted in the installa- 
tion of a new ministry favoring reduction 
of military service from three to two 
years, the German party for the first time 
in its history of over forty years voted 
the military budget. 

Who can doubt today, seeing through 
the present relations between the so- 
called majority Socialists and the im- 
perial government, that the former's 



STAGNANT ECONOMICS 



25 



claim that they were unprepared on that 
4th of August, taken by surprise by the 
events, fooled by the government into 
the belief that the principal fight would 
be waged against the Czar, are mere shal- 
low excuses, that they knew a year before 
what was coming and that then was the 
time when they had to decide whether 
they would stand by the international 
proletariat or by the German capitalists. 

What brought about this gradual men- 
tal change and finally the deliberate dis- 
regard of Marx's admonition, "Working- 
men of all countries, unite," by the former 
advance guard of the international Social- 
ist movement is something we very much 
need to understand. 

The rapid capitalistic expansion had 
favored the spread of trade unionism and 
created a large salaried intellectual prole- 
tariat in the industrial professions. In 
becoming unionists, the workers did not 
cease to be Socialists. But the spirit of 
trade unionism gained the ascendency. 
Capitalism was soaring. The fulfillment 
of Marx's prediction of the loss of control 
of the means of production by the capital- 
ist class seemed removed into the hazy 



26 THE COLLAPSE OF CAPITALISM 

future. It seemed better to give prece- 
dence to the workers' immediate material 
interests. Of course, one might continue 
to vote the Socialist ticket — no harm in 
that, and it might be useful, as, for in- 
stance, in protecting the right of organiza- 
tion. But if it came to deciding a real 
issue, such as whether a general strike 
should be resorted to in order to gain the 
franchise in Prussia, the trade union spirit 
prevailed over the Socialist spirit. 

What, really, is this trade union spirit? 
Perhaps illustration may be better than 
dissertation, especially if taken from well 
known facts nearer home. 

Before the great Paterson silk strike of 
1913 the loomfixers, warpers and twisters 
were organized. Constituting a small 
group (about five per cent of the total 
number of silk workers), but able to 
paralyze the industry, they had managed 
to raise their wages fifty per cent above 
those of good weavers, while in Pennsyl- 
vania, in the absence of organization, the 
wages were the same, or but little higher, 
than those of good weavers. When the 
uprising broke out these privileged work- 
ers were forced into idleness. Intolerable ! 



STAGNANT ECONOMICS 27 



The privilege to paralyze the industry 
was theirs, and now this mass of mudsills 
were turning the tables on them. If the 
ninety-five per cent were successful, 
it meant a new order of things. Where 
there had been easy acquiescence on 
the part of the bosses to the demands 
of the few, there would be strenuous re- 
sistance hereafter to the demands of all. 
Raising the price of a particular product, 
comparatively to that of other products, 
tends, save under exceptionally favorable 
conditions, to lessen its consumption, thus 
sharpening competition and reducing the 
profit rate. The well-being of the union 
members is conditioned on the helpless- 
ness of the masses. If the unions erected 
no barriers against the unlimited growth 
of their own membership, or if they strove 
for the general organization of the whole 
working class, they would lose their pres- 
ent privileged position absolutely. And 
so the American Federation of Labor sent 
officers of an affiliated textile union to 
Paterson to break up the strike. 

Lest it might be thought that this case 
may be exceptional and not characteristic 
of the general attitude of the unions 



28 THE COLLAPSE OF CAPITALISM 

toward the masses, let me recall an inci- 
dent which lays bare the whole antagon- 
ism. At the hearing on the New York 
state health insurance bill, the general 
organizer of the American Federation of 
Labor, speaking in opposition to the bill, 
said: "Trade unions already have suc- 
cessful insurance systems" and "labor 
does not want class legislation even for 
itself/* When these men use the word 
labor, they always do so with a mental 
reservation. They do not mean the ab- 
straction which is expressed by this word, 
but the concrete members of the craft 
unions. These oppose class legislation 
for themselves, if it at the same time helps 
the masses, and the more so if it helps 
the masses to the disadvantage of the 
unions. The trade unions are able to help 
themselves. 

These facts were expressed essentially 
by a representative of a very large union, 
comprising, however, all workers em- 
ployed in the industry. She spoke at the 
hearing in favor of the bill, "not because 
it is necessary for organized labor, but 
because it is imperative for unorganized 
labor. Where there are two and a half 



STAGNANT ECONOMICS 



29 



million organized workers in the United 
States, there are about thirty million un- 
organized workers." 

For forty years the Socialists in this 
country have tried to make propaganda 
among the unions and avoided everything 
that might displease them. All in vain. 
Contrary to the order of events in Ger- 
many, in America the unions were on the 
spot before the Socialists. It is the cus- 
tom of the latter to reproach the unions 
with being unenlightened and to express 
the eternal hope that they may recognize 
the necessity of modernizing their organi- 
zation. All in vain. They do not want 
to be converted. You cannot give points 
to Samuel Gompers on Marxian eco- 
nomics. He was, in his younger days, a 
capable student of them, as the writer 
knows personally, but he decided to use 
his knowledge in the interest of a 
relatively small class. 

The foregoing is not meant as a re- 
crimination against unions or against 
Gompers. It is all "economic determin- 
ism." Social revolutions are not brought 
about by the force of intellect, but by eco- 
nomic pressure. Marxian economics per- 



30 THE COLLAPSE OF CAPITALISM 

mit this pressure to be relegated to an 
uncertain future. The consequence was 
the rise of an intermediate class able to 
save itself from submersion by pressing 
down on the masses. 

In Germany this new class included an- 
other important element, namely, that of 
the mental workers. With its model sys- 
tem of technical schools that country pro- 
duced chemists, mechanicians, etc., so to 
say, by machine, when in other countries 
they were still being made by hand. Nat- 
urally their exchange value fell and for 
many years past we heard much about 
Germany's intellectual proletariat ; also 
complaints about their prominence and 
undue influence in the party. They 
smarted under the handicaps of a cramped 
Germany and their ideology became im- 
perialistic. These able men, instead of 
earning small salaries at home, saw them- 
selves earning large salaries as technical 
directors in German dependencies, if only 
Germany would possess that "place in the 
sun" to which her capacity entitled her 
and which England refused her. 

Their ideology harmonized with that of 
the trade unionists, who soliloquized in 



STAGNANT ECONOMICS 31 



the following strain: "We have done 
very well since our country has become 
industrialized. Why should we not fare 
still better if our country gained a 'place 
in the sun'? We are living now, and So- 
cialism is still far off. Really the inter- 
ests of (German) capital and (German) 
labor are identical. The identity of in- 
terest of the whole world proletariat is 
for the present a chimera. We are an all 
embracing German trade union. Each 
one of us was a German before he was a 
Socialist." 

These elements, the trade unions and 
the salaried intellectuals, as the econom- 
ically better situated, better educated and 
more alert, secured control of the party 
machinery and of its representation in the 
Reichstag. We know the result. 

What happened on the 4th of August 
was nothing cowardly or treacherous. It 
was simply the outcome of economic de- 
velopment, which does not stand still, 
even if economic science sometimes does. 
The admonition, "Workers of all coun- 
tries, unite, " and the axiom, "The eman- 
cipation of the working class must be ac- 
complished by the workers themselves," 



32 THE COLLAPSE OF CAPITALISM 

have paled. But our hearts need not 
grow heavy on that account. In our time 
— more so than ever before — man is 
driven by the superior power of economic 
law, and old formulae may not hold. For- 
tunately and wonderfully, capitalism was 
born with the germ of a mortal disease 
which has been revealed only in the 
course of the last fifty years, and the com- 
ing of its fatal crisis can be almost meas- 
ured. The progress of the disease has 
been abnormally furthered by the war. 
Capitalism is now moribund and its end 
is due within a very few years. 



CHAPTER III. 
The Fatal Flaw of Capitalism. 

IT CANNOT be stated too often that all 
analyses of recent economic develop- 
ment must start with the basis estab- 
lished by the discoveries of Marx. 

Capitalism is quasi-social. Each unit 
of society produces things which others 
want, and itself consumes what the others 
produce. There exists, however, no regu- 
lation of production and, while there is a 
general division of labor, the units act on 
their own responsibility. 

The division of the products is, conse- 
quently, only possible by their being uni- 
versally exchanged for each other on the 
general basis of value or socially neces- 
sary labor time. Thus products are not 
merely useful things, but, owing to their 
value relation, commodities. To effect 
these numerous exchanges directly is an 
absolute impossibility. 

It was necessary for the commodity 
producing society, of which capitalism is 
the modern development, to hit on some 
single commodity for which the demand 
33 



34 THE COLLAPSE OF CAPITALISM 

was always at least equal to the supply, 
and which might thus be acceptable 
everywhere in exchange for any other 
product. Many things have served as 
such widely accepted equivalents, but 
finally gold proved itself to be naturally 
the universal equivalent. Social recogni- 
tion made this particular commodity the 
world's money, in which all values are 
expressed and which can buy anything 
anywhere. Thus there are two categories 
in the process of the above mentioned 
universal exchange — the commodity and 
money. The producer sells for gold and 
with it buys what he needs. He effects 
an exchange of two commodities by 
means of money. 

It is already seen that money (which is 
now synonymous with gold) has here per- 
formed two functions : 

First, before the actual exchange it has 
served as a measure of value or an indi- 
cation of the price of each commodity; 
therefore, indirectly of the relative value 
of the two commodities or the quantita- 
tive proportion in which they were ex- 
changeable. 

Secondly, as the substantial and so- 



FATAL FLAW OF CAPITALISM 35 

cially recognized equivalent of each com- 
modity in the act of sale or purchase. 

Marx notes that gold, in performing 
these two money functions, appears in 
two different aspects : 

Only abstract or ideal gold — gold in 
general — is needed for the money func- 
tion of measure of value. 

But concrete, particular and definite 
quantities of gold are needed for the func- 
tion of means of circulation (including 
the function of means of deferred pay- 
ment, or credit). 

Marx, of course, does not say that the 
distinction between abstract and concrete 
gold involves any incongruity apt to sub- 
ject the system to ill effects and possibly 
prove fatal to it. Indeed, there can be no 
contradiction between sense-perceived ob- 
jects and their generalization or abstrac- 
tion. When we say "animal" we include 
in this abstraction a great variety of crea- 
tures; but although a whale and an 
amoeba differ greatly from each other, 
neither can present a contradiction with 
the abstraction "animal." 

Nevertheless, since Marx's time eco- 
nomic evolution has actually produced a 



36 THE COLLAPSE OF CAPITALISM 

contradiction between concrete and ab- 
stract gold, speaking not, of course, of 
gold as a natural product, but as a social 
institution, as the money material. But 
even so, how is this possible? Are not 
scientific principles universal, applying to 
the science of economics no less than to 
the other sciences? 

There are cases in nature where a 
change of quantity transforms itself into 
quality. Water, losing a certain quantity 
of heat, becomes ice. Similarly gold, as 
the money material, is undergoing a quan- 
titative change considered in relation to 
the social need. But gold, as money, per- 
forms a dual function. When the quanti- 
tative change in one direction or the other, 
either by increase or decrease, transforms 
itself into a qualitative one, then the cor- 
respondence of the abstract with the con- 
crete during the former state of balance 
is disturbed. A flood of gold deprives it 
of the quality of being a measure of value, 
while it favors the other function. De- 
ficiency, on the other hand, deprives gold 
of the quality of being a means of circula- 
tion, whilst its function of measure of 
value remains unaffected. Concrete gold 



, FATAL FLAW OF CAPITALISM 37 

and abstract gold as the money material, 
have reached a state of contradiction. 

The mere statement by Marx, sufficient 
in his time, of the distinctive uses of ab- 
stract and concrete gold is now seen to 
contain the germ of a contradiction which 
can be formulated as follows : 

Abstract gold can fulfill the money 
function of measure of value so long as 
the concrete quantities from which the 
abstraction is derived are insufficient for 
the social need; 

Concrete gold can fulfill the money 
function of means of circulation (includ- 
ing deferred payments) so long as the 
quantity is sufficient for the social need. 

What actually has been progressing 
since Marx with ever-growing momentum 
is the transformation of gold, as money, 
into gold, as metal. This carries with it 
the loss of its quality of means of circula- 
tion, as water turning to ice loses the 
quality of drinkableness, and means the 
rapidly approaching end of the era of 
money. 

The contradiction between the require- 
ment of scarcity for one function of 



38 THE COLLAPSE OF CAPITALISM 

money and abundance for the others now 
can be clearly recognized as the most fatal 
defect of capitalism. 

The war has developed this contradic- 
tion with abnormal rapidity to a point 
where it is an immediate menace to that 
form of society. Its downfall, root and 
branch, will be positively assured by a 
continuation of the war for, say, another 
year. That downfall will then be like an 
act of nature, and not dependent on the 
mental and moral preparation of the peo- 
ples of the world for a new form of society 
which must, perforce, be completely 
social. 

On the existence of money depends 
the existence of capitalism. The condi- 
tions presented by gold are absolutely 
vital to its life. One valuable product, 
representing social labor time, is neces- 
sary as an equivalent which confirms to 
the uncontrolled private producers the 
social validity of their individual labor 
time. When it becomes impossible any 
longer to conform to this necessity, then 
the category of money breaks down and 
not a vestige of capitalism can survive a 
day. 



FATAL FLAW OF CAPITALISM 39 

Most of us do not see a gold piece or 
bar from year's end to year's end. We 
are paid our wages or for goods, in paper 
money or checks, and the subject of gold 
seems too remote to hold any possible in- 
terest for us. Even those of an inquiring 
mind may be excused if at first sight they 
approach the subject with a feeling of 
bored resignation. The general impres- 
sion is that this subject is of interest only 
to financiers. And yet there is no sub- 
ject which touches as closely the eco- 
nomic future of the reader, of the work- 
ing class and of the whole human race, as 
this very subject of gold. 

The yellow metal always has been 
much coveted. With the increase of trad- 
ing it was found to be a most available 
commodity to trade with, as it was always 
acceptable in exchanges. It came to be 
preserved for this very purpose, instead 
of being consumed. As soon as the sup- 
ply was sufficient gold became the uni- 
versal equivalent, and with the coining of 
pieces of arbitrary weight and fineness by 
the state, as a guaranty of their value, it 
became the socially recognized money. 
At present the world's stock of gold rep- 



40 THE COLLAPSE OF CAPITALISM 

resents nine billions of dollars. This 
leaves far behind the value of any other 
single commodity. If any other raw 
material showed a similar position of sup- 
ply relative to consumption the bottom 
would be knocked out of its price. But 
the mine owners do not have to pay the 
least attention to the state of consump- 
tion. Their product is not intended to 
serve any rational use, although a large 
part of it does find such use. They can 
go on serenely producing gold at a profit 
for a purpose the existence of which can- 
not be considered as a subject for com- 
pliments to the present state of human 
intelligence. We think that without this 
vast stock of otherwise futile raw material 
we would be at an utter loss how to dis- 
tribute our products among ourselves. 
Indeed, this stock is woefully insufficient 
to accomplish that function. 

In 1914 official data assigned to gold a 
narrowness of 4y 2 per cent of the total 
money system of the United States, the 
most favored country. In spite of the 
huge transfers of gold from other coun- 
tries during the war, this percentage has 
shrunk still further. Before the war this 



FATAL FLAW OF CAPITALISM 41 

narrowness was even more extreme in 
other countries, especially in England. As 
gold is the sole value basis of the entire 
monetary system, bank deposits and notes 
being in the last analysis redeemable in 
gold, it is not to be wondered at that for 
a long time before the war the outflow of 
even moderate quantities of gold from a 
country caused anxiety to its financiers. 
But since the war, owing to the enormous 
multiplication of substitutes for money 
(bank notes and bank deposits) in the 
belligerent countries, the gold situation 
has reached a most critical stage, and the 
gold basis has practically been abandoned 
in all of them. Yet gold is naturally the 
money commodity — nothing else that ex- 
ists on this planet, or that ingenuity could 
contrive, can replace it to advantage. 
Gold will not even tolerate any other gods 
beside it. All efforts, for instance, to 
maintain a definite value relation with it 
of silver have failed. 

With the increase of production by cap- 
italism the inadequacy of the gold supply 
began to make itself felt. Certain experi- 
ences led to the discovery that tokens of 
money of less than the indicated value, or 



42 THE COLLAPSE OF CAPITALISM 

even of no value, could be used for circu- 
lation. It is positively not true that 
Mephistopheles was the inventor of paper 
money, as Goethe informs us in the sec- 
ond part of "Faust." Anyhow, the state 
issues slips of paper on which various de- 
nominations of value are printed and by 
its authority declares them legal tenders 
for all money obligations. Thus they are 
an addition to the gold. 

How can the state endow worthless 
slips of paper with the function of 
money? 

Indeed, the state is powerless to do this. 
It cannot endow these slips with all the 
functions of money. In the first place, 
it lies in the very conception of money, 
as defined by Marx, that it must be world 
money. Tokens are only current within 
the confines of the state. Internationally, 
only gold is accepted. Furthermore, 
paper slips, being of no intrinsic value 
themselves, cannot be the measure of 
value of other things. They also cannot 
function as means of deferred payment 
(credit), because, as such, a money ma- 
terial subject to the least possible change 
of value is required. That is the reason 



FATAL FLAW OF CAPITALISM 43 



why long-term bonds are made payable 
in gold, it being permitted to eliminate 
tokens by private contract. And tokens 
are subject both to overvaluation and de- 
preciation. In fact, both have occurred. 

The only function of which tokens are 
capable is that of means of circulation 
within the state, and even that only up to 
a certain limit fixed by economic law, 
which is mightier than the state. 

Now, the question might be narrowed 
to this: How can the state endow the 
paper slips with even that much power? 

The answer is : The essential thing for 
the alimentation of the social body is the 
circulation of the privately owned com- 
modities. In the acts of exchange money 
takes only a fleeting part. After having 
mediated here, it moves away to repeat 
its offices elsewhere. In this ephemeral 
role gold may be replaced by a symbol. 
But, while outside of circulation, gold al- 
ways retains its full value as a commod- 
ity, its symbols become mere worthless 
stuff. 

The power of the state to issue papers 
as symbols of gold is limited by the ex- 
tent to which gold itself would have to 



44 THE COLLAPSE OF CAPITALISM 

circulate. If issued in excess of the eco- 
nomic law, the tokens depreciate rela- 
tively to gold. Nationally they become 
the measure of value, but only in an indi- 
rect way. First, the total value of the 
commodities to be circulated within a 
given time by the tokens determines the 
value of the total issue of the latter; then 
the value of the token units is revealed 
as an aliquot part of their sum. They 
lose their character of tokens of gold and 
become tokens of value in general, indefi- 
nite and varying with the fluctuations of 
the total value of the commodities. 

There is only one way of positively 
knowing whether and to what extent 
tokens have depreciated, namely, by their 
value-relation to gold. This is usually 
first revealed by the rates for foreign ex- 
change. In normal time this item in the 
newspapers is most uninteresting to the 
general reader. But we are passing 
through an abnormal economic period, 
and there is nothing so significant as the 
progressive decline of foreign currencies, 
as quoted in American money, except 
where prevented by artificial, and doubt- 
less temporary, means. The latter is now 



FATAL FLAW OF CAPITALISM 45 

the case with the pound sterling. This 
depreciation of foreign exchanges meas- 
ures, and will continue to measure if the 
war cannot be ended before long, the dis- 
tance already traveled, and still to be 
traveled, to the complete destruction of 
money, which means the death of capi- 
talism. 

Thus Russian and Austrian paper 
money can be seen to have lost 80 per 
cent ; German and Italian, 50 per cent of 
its normal value. English and French 
exchange has been sustained, while that 
was possible, by giving up to the United 
States all their available foreign invest- 
ments and a huge mass of gold. When it 
became impossible to keep this up any 
longer, America was confronted with the 
alternative of allowing the pound sterling, 
the world's credit denomination, (and 
with it the franc), to fall suddenly to the 
level of other European currencies, or of 
furnishing our goods without pay. 

Our capitalists began to perceive that it 
had been a mistake to gloat over the pros- 
pect of supplanting the impaired pound 
by the intact value of the dollar as the 
world's credit denomination. The war 



46 THE COLLAPSE OF CAPITALISM 

had carried things too far. On the con- 
trary, they began to realize the imperative 
necessity of sustaining the impaired 
pound. It was a supreme occasion for 
capitalist solidarity. The effort had to be 
made, not counting billions, to stand 
united, and should it not succeed all might 
as well go down united, as disunited they 
surely must. Therefore, our government 
now pays for the goods with money 
borrowed from our patriotic citizens. 

There have been many instances of 
great depreciation of paper money and 
several of the utter extinction of its value. 
All these instances have been national and 
occurred prior to the building up of the 
present much more complicated financial 
mechanism. For these reasons they re- 
mained without permanent ill effects. It 
will be altogether different when the in- 
herent tendency of the monetary system 
(which I will take up in due course) leads 
to inevitable and progressive depreciation 
simultaneously in all countries. 

This monetary system includes not only 
the current money of the realm, gold and 
its symbols, but a kind of bookkeeping 
money which is transferred from one to 



FATAL FLAW OF CAPITALISM 47 

the other by means of written orders, 
called checks, issued on institutions called 
banks. These are the social custodians of 
and bookkeepers for this new kind of 
money. It is a development of the second 
half of the last century. In Marx's time 
it was in considerable use in England 
among the large capitalists. He espied 
the dangers of the "clearing" system, saw 
that it was apt to lead to panics; but it 
was impossible for him to foresee that 
bookkeeping money, then in its infancy, 
was to be the indispensable tool for engi- 
neering the tremendous rise of capitalism 
just beginning, and that this infant would 
grow up to be the monster that must 
eventually destroy its maker. 

What has so far been said about gold 
and paper money can only find its real ap- 
plication when brought into relation with 
bookkeeping or bank money. Only an un- 
derstanding of the complete subject en- 
ables us to realize the present precarious- 
ness of capitalism and to determine our 
attitude toward the war. There has taken 
place since Marx an important economic 
development which has placed the bank 
(money) instead of the industrial capital- 



48 THE COLLAPSE OF CAPITALISM 

ist (commodity) in the center of the world 
stage. 

Socialists unaware of this development 
cannot act with the necessary judgment 
in the present world crisis. 



CHAPTER IV. 
Money of Account. 

IN THE year 1863, about the time when 
the first volume of Marx's principal 
work appeared and not long after his "Cri- 
tique of Political Economy," which treated 
mainly of the problem of money, the de- 
posits of all the banks in the United States 
were $394,000,000. Today there are single 
banks in New York whose deposits' are 
larger, and the total deposits in the coun- 
try are fast approaching the thirty thou- 
sand million mark. 

This is a new kind of money which has 
added itself, not only in this country, but 
in all capitalistic countries, to the metallic 
and token money previously used almost 
exclusively. Great Britain alone had al- 
ready developed the new kind of money 
to a certain extent as already mentioned. 
Without this additional money, the great 
industrial advance of the last half cen- 
tury would have been impossible, as the 
metallic money, together with the super- 
imposed tokens, would have been utterly 
49 



50 THE COLLAPSE OF CAPITALISM 

insufficient to meet the rapidly increasing 
requirements of circulation and of de- 
ferred payment. 

What is the true inwardness of this new 
money? How did it originate and how 
does it grow? What are its economic 
effects? 

It is a trite statement that about the 
middle of the last century the building 
of railroads and the launching of many 
new industries made it necessary to col- 
lect all the scattered funds which, thus 
concentrated by the banks, were put at 
the disposal of the industrial capitalists. 
But that sum, as we see by the example 
of the United States, was not very large 
and has, in fact, been cancelled long ago. 

The real origin of the immense total of 
the world's bank money, or Money of Ac- 
count, is twofold, producing two cate- 
gories of such money. I designate them 
respectively : 

Money of account originated in profit, 
and 

Money of account originated in bank 
credit. 

In practice these two categories of 
money of account continually flow into 



MONEY OF ACCOUNT 



51 



each other, become indistinguishable from 
certain angles and would be inextricably- 
mixed, if it were not theoretically pos- 
sible to eliminate and cancel the last- 
named category, leaving only the first 
named to continue in existence. Such a 
contingency, however, is entirely out of 
the question, either now or during what- 
ever span of life capitalism may still have. 

In the analysis of the whole subject it 
is, however, necessary to keep each cate- 
gory of money of account distinctly sepa- 
rate as far as possible, merely observing 
finally their manner of intermingling and 
the ever-recurring cancellation of the 
bank-created money by the other kind. 

We shall now proceed to discuss the 
profit-originated money of account, and 
the reader will remember that in doing so 
we separate it for the present from the 
existence of the bank-made kind. 

This money of account, then, consists of 
various elements of which the ownership 
is vested in the several kinds of banks and 
in their depositors. The totality repre- 
sents loan capital lent or to be lent to 
others by the banks. These elements are : 

1. The banks' capitalization (which is 



52 THE COLLAPSE OF CAPITALISM 

very far from being identical with capital 
paid in, one bank in New York, for in- 
stance, having distributed a stock divi- 
dend of 1900 per cent at one swoop) and 
their surplus accumulated from profit; 

2. A certain part of the deposits, less 
the extent to which they may be covered 
by cash in the possession of the banks. 
All of this cash came from the depositors 
and is subject to their call. 

It is already apparent that the banks are 
the social monetary agents who are debt- 
ors and creditors for equal amounts. They 
are debtors to their stockholders and de- 
positors, and creditors of the borrowers. 
But it is their relation to their depositors 
which, as we shall see, is by far the most 
important and, indeed, constitutes the 
most immediate menace to the life of capi- 
talism. 

How did this relation arise and how is 
it that it grows in importance all the time, 
as evidenced by the growing deposits? 

The daily deposits consist now, as they 
have for a number of years, of about 
94 per cent checks and 6 per cent current 
money. Elaborate investigation by the 
government has shown that the daily cash 



MONEY OF ACCOUNT 



53 



deposits practically represent the circula- 
tion of the country's payroll, the capital- 
ists and farmers paying for their personal 
expenses mainly by checks. In England 
check payments preponderate to a similar 
degree and their proportion to cash pay- 
ments has increased fast in Germany dur- 
ing the last ten years. 

It is clear that if the daily deposits con- 
sisted exclusively of checks it would be a 
case of mere transfers from one deposit 
account to another of already existing 
money of account. The sum of the latter 
could never increase in the least by such 
mere transfers. It must be, therefore, 
that the secret of the growth lodges in 
that 6 per cent of current money. 

This supposition is strengthened by the 
certainty that at the beginning of modern 
banking there was nothing but cash — no 
money of account whatever and yet this 
latter germinated and grew. And while 
we are on the track of the problem, an- 
other fact strikes us: This immense 
amount of bank money once did not exist 
and now does as an addition to the cash. 

Clearly it is a gain. But whose gain? 
The workers own only a small portion 



54 THE COLLAPSE OF CAPITALISM 

even of the deposits in the savings banks ; 
the middle class (mostly farmers) has a 
larger share in the gain, but the great 
bulk belongs to the capitalists. That it 
would be uselessly complicating the sub- 
ject under discussion to consider the 
money of account as anything else but 
profit is shown by the mere fact that the 
one federal reserve district of New York 
out of the 12 districts, has one-third of 
the total resources. And, besides, New 
York is the seat of the great trust com- 
panies. 

Now, let us watch the operation of the 
formative process of the new money. A 
retailer deposits the cash receipts of the 
day in his bank. Let us suppose that he 
at once remits to his wholesale purveyor 
an order on his bank (check) for precisely 
the goods sold. The check will leave a 
balance on his account, representing his 
profit. The wholesaler, following suit, 
remits a check to the manufacturer of a 
lesser amount than that received, as he 
also retains his share of the profit. The 
manufacturer in his turn issues his check 
for the raw material consumed and draws 
out of the bank the cash for the wages 



MONEY OF ACCOUNT 



55 



necessary for reproduction, whereupon 
the wages start their next rotation with 
the bank again as a point of passage. 

So much of the cash as the manufac- 
turer draws less than the retailer had de- 
posited remains for a time, the length of 
which is capable of statistical demonstra- 
tion, in possession of the bank, subject to 
call by any depositor, but in the meantime 
constituting the bank's "reserve." At the 
end of its period of quiescence in the bank 
the balance of the retailer's cash is finally 
drawn by capitalists, farmers, etc., for 
personal expenses. 

The daily repetition of this process and 
the resultant accumulation of the profit 
sediments have in the course of time made 
it possible to dispense entirely with 
money for the settlement of obligations 
between capitalists which are now effect- 
ed exclusively by money of account, 
through the medium of the check. 

Just what this kind of money is may not 
yet be quite clear. Suppose, therefore, 
that you deposit a hundred dollars cash 
in a bank today. Tomorrow this cash is 
paid out again by the bank to any apply- 
ing depositor and continues its existence 



56 THE COLLAPSE OF CAPITALISM 

in the freedom of circulation. At the 
same time this cash has left behind its 
shadow on your deposit account. You 
also are still the owner of a hundred dol- 
lars (in the form of a bank deposit). Ap- 
parently the amount of existing money 
has doubled. The same identical hundred 
dollars may thus give rise to innumerable 
shadows on the bank's books. This won- 
derful exhibition of the independence of 
shadows from substance is made possible 
only by the social faith that all these 
shadows can be resubstantiated. 

There are, of course, taking place con- 
stant reductions of the size of the shad- 
ows ; otherwise the growth of the money 
of account would proceed at a furious 
rate. These counteracting factors are per- 
fectly capable of analysis, but this would 
require more space than these chapters 
permit. Here, therefore, we must content 
ourselves with the foregoing suggestion 
of the positive side of the process of 
growth. 

Notwithstanding the counteracting fac- 
tors and the relatively small part which 
cash plays in the daily deposits, the vol- 
ume of money of account is increasing 



MONEY OF ACCOUNT 



57 



20 times as fast as the volume of the basic 
gold, a most momentous fact. 

It seems hardly necessary to state now 
explicitly that the accumulation of shad- 
ows which we know under the name of 
bank deposits are really not money at all, 
but only titles to money which the banks, 
as social monetary agents, have under- 
taken to redeem. They are the banks' 
debt, popularly known as deposits and 
transferred from one to the other as 
money. These titles, once created, are 
indestructible, except by the theoretically 
normal, but practically impossible, pro- 
cess of their redemption in money, or by 
the theoretically abnormal, but only pos- 
sible, process of the failure of the banks. 
Therefore, the volume of the titles ever 
increases until the system breaks down 
under the weight of its own absurdity. 
The root of it lies in one of those contra- 
dictions of which capitalism is so full. 
The banks are not paid, as their historical 
predecessors were, for the service of han- 
dling and safekeeping their clients' 
money. Their income is derived from in- 
terest on their clients' money which the 
banks lend out for their own account, 



58 THE COLLAPSE OF CAPITALISM 

without cancellation of the title to the 
money by the depositors and without 
their legal consent. The banks are sup- 
posed to lend out the money, and at the 
same time not to lend it out, but have it 
always at the call of the depositors. 

And, now, how good are these titles to 
money? The disparity in the rate of in- 
crease between the titles to money and 
the actual money (gold and tokens) has 
already been pointed out above. As to 
the final outcome the reader cannot be in 
any doubt. But the purpose of this little 
book is to show how far the destructive 
process has already gone in the normal 
way in the United States and how far it 
has been advanced abnormally in Europe 
at the present stage of the war. 

As I show in my book, "Capital To- 
day," the banks of the United States held 
in 1913 about 9 cents for every dollar they 
owed their depositors. Since then condi- 
tions have not improved, in spite of the 
gold imports which have piled up in this 
country three-eighths of the world's gold. 
This "reserve" is unequally distributed, 
running from fairly high reserves carried 
for the central reserve cities down to ^ 



MONEY OF ACCOUNT 



59 



per cent in the case of mutual savings 
banks. A widespread demand for money, 
especially if it exceeded the aforemen- 
tioned 9 per cent of the deposits, would 
be impossible to satisfy, except with 
paper money, which would progressively 
depreciate so long as its quantity 
increased. 

It is unnecessary to recall here that the 
creation of tokens is limited by the sorely 
deficient supply of gold. But how has 
society been able to get along with such 
a slow increase in the volume of current 
money in the face of the enormous up- 
building of money of account? True, the 
getting along was not always smooth. 
Rumblings foreboding the greater storm 
a-coming have occurred, as for instance, 
the panic of 1907, when checks went to 
a discount of 5 per cent against paper 
money and remained at a discount for a 
month. Normally, however, currency is 
needed only for the country's pay roll, 
as already stated, and the growth of the 
pay roll is out of all proportion to the 
profit accumulation in money form, al- 
though this has served over and over 



60 THE COLLAPSE OF CAPITALISM 

throughout the years for the personal 
support of the capitalists. 

Now, this accumulation of profits in 
money form comes into conflict with the 
system of wages for which a relatively 
small fund only is required. On the day 
when the capitalists shall desperately seek 
to realize their profits in actual money, 
instead of titles to money which is only 
a nominal realization, then the contra- 
dictions of capitalism must end in a social 
catastrophe. The Marxian conclusion 
regarding the final outcome of these con- 
tradictions, already summarized in the 
second chapter, namely, the incompati- 
bility of the growing means of production 
as an engine for profit, with the payment 
of mere wages to the workers, finds a new 
and directly dangerous version in the 
incompatibility of the growing volume of 
titles to money with the necessary ex- 
istence of only enough actual money for 
the payment and circulation of mere 
wages. 

We now come to the second category 
of money of account, that created by the 
banks. 

Every loan taken up by a depositor 



MONEY OF ACCOUNT 



61 



immediately becomes a deposit by being 
credited to his account. The bank, how- 
ever, must have a "reserve" against such 
deposits, the proportion being fixed by 
law in the United States, but in England 
left to the discretion of the deposit banks. 
Now, when an intending borrower applies 
for a loan, must the official see whether 
he has any unemployed deposits on hand ? 
By no means. All he needs to know is 
whether he has cash on hand in excess 
of the reserves required on his existing 
deposits. Thus, if he finds that he has 
an excess of, say, $10,000, he may lend 
$100,000. The sum of money thus lent was 
not in the possession of the bank and has 
really no physical existence at all. The 
lending of "money" which is so utterly a 
fiction of the mind is made possible by the 
system of "clearing" which was already dis- 
trusted by Marx. The bank official knows 
that all other banks are doing the same 
thing; that all checks drawn against such 
loans are likely to balance approximately 
at the clearing house without strain on any 
one bank. Thus bank A makes a loan to Y, 
bank B to Z, each of $100,000. Y's check 
finds deposit in B, Z's for the identical 
amount in A. At the clearing house the 



62 THE COLLAPSE OF CAPITALISM 

checks held by A and B against each 
other are "swapped." The two banks 
have lent out a total of $200,000 without 
having paid a cent. That banks ordinarily 
cannot fail to be tempted to earn interest 
on money so purely imaginary is self- 
evident. 

The payees of the two checks do not 
know, and need not care, whether the 
remitter borrowed the money or owned 
it. For them they represent simply the 
money form of the value of commodities 
they sold. When they deposit the checks 
the amount becomes an addition to the 
profit-originated money of account, not 
because the value of the commodities was 
all profit, but because the value consists 
partly of new profit and partly of old 
profit become capital. Profit-originated 
money of account is the money form of 
part of the accumulation of old profits to 
which new profits in money form are 
constantly being added. 

As a matter of fact, however, the checks 
given by the borrowers represent no 
value, no previously performed labor. 
The money is purely fictitious, created by 
the banks out of nothing. As it has 
nevertheless become profit-originated 



MONEY OF ACCOUNT 



63 



money of account when it came into pos- 
session of the sellers of the commodities, 
having been metamorphosed into such 
by transfer from the bank-made credit 
money, there exists now evidently an 
inflation of the profit-originated category 
which cannot be otherwise than tem- 
porary and must needs be removed. The 
deflation is effected at maturity of the 
loans by their amounts being charged to 
the deposit accounts of the borrowers. 
The inflation of profit-originated money 
of account on one set of deposit accounts, 
that of the sellers, is made up by can- 
celling accumulated profits on another 
set of deposit accounts, that of the bor- 
rowers. The mortgage on future profits 
is satisfied, and the bank-made credit 
money ceases to exist. But other such 
fictitious deposits take the place of the 
liquidated ones in ever-increasing volume. 
It is the expectation of the capitalist 
class and its retainers, the university po- 
litical economists of our time, that the 
borrowings of fictitious money, which we 
call bank-made credit money, will be re- 
deemed forever by actual future profits 
in the form of profit-originated money of 



64 THE COLLAPSE OF CAPITALISM 

account, and they are under a vague im- 
pression that there is no natural limit of 
the figures which the latter may reach. 
This expectation is quite nebulous and far 
from assuming the definite terms in which 
we describe the process. They do not 
understand their own system, and they 
have an instinctive aversion to a scientific 
analysis of it. Philosophic economics is 
good enough for them. 

Developing capitalism needs ever more 
money and cannot do without the bank- 
made kind. Billions of it have been cre- 
ated here lately on the basis of the influx 
of gold and the legal reduction of the 
reserve requirements. The European war 
has been financed mainly with just this 
fictitious money. The dangers lurking 
behind the money of account, especially 
and immediately of the bank-made kind, 
for the world's banks, therefore for the 
world's money which they represent, 
therefore for capitalism itself, are realized 
by the best experts in the service of the 
haute finance, although given cautious 
expression publicly, and by the big cap- 
italists themselves, judging by their ac- 
tions. Pay day must come, and with it 



MONEY OF ACCOUNT 



65 



the revelation of the social insolvency 
which will form the subject of my next 
chapter. 



CHAPTER V. 
The Social Insolvency. 

LET us recall these salient facts : That 
mere titles to money have come to 
take the place of actual money among the 
capitalists; that the money left by the 
people at the disposal of the banks is now 
quite inconsiderable, compared with the 
volume of the titles; and that, neverthe- 
less, the volume of the titles is growing 
(at least in the United States) twenty 
times as fast as the basic gold. 

Where this absurdity must lead to can 
be no secret to the financial leaders. They 
admit that no financial legislation can 
make the system intrinsically sound. So 
they use their technical knowledge to 
devise contrivances calculated to keep the 
machine going for some years longer, 
hoping that, meantime, something may 
turn up to save the situation once more. 
That is all there is behind the federal 
reserve act and the amendments recently 
added to it. Previous to these enactments 
the safety of the banks had been sought 
66 



THE SOCIAL INSOLVENCY 67 

in large reserves. Under the old law New 
York, Chicago and St. Louis national 
banks, for instance, had to carry 25 per 
cent cash against their demand deposits. 
The new reserve system makes it legally 
possible to reduce this reserve to less than 
three and a half per cent, as shown by 
Theo. H. Price in "Outlook," 1917, p. 477. 

It should be understood that banks 
have no power to increase or decrease by 
a dollar the amount of money in their 
vaults. This power rests only with the 
depositors to whom the money belongs in 
reality, though not nominally. They can 
deposit or draw as much or as little as 
they please. All the banks can do is to 
limit the sum of their loans which, as we 
have seen, immediately become deposits, 
so as to accord with the cash in their 
possession. 

The Federal Reserve legislation recog- 
nizes the fact that money of account 
cannot rely for safety on large reserves. 
New York banks have been forced to sus- 
pend in spite of their 25 per cent reserve. 
The hope for safety for a while longer lies 
rather in the localization of "runs" and 
the prevention of the spread of the alarm. 



68 THE COLLAPSE OF CAPITALISM 

The financial leaders know that the whole 
financial mechanism rests on nothing but 
faith. They do not say : "Come, convince 
yourselves of the reasonableness of our 
system; use your intellect!" Instead, 
they merely say: "Have faith!" Other 
gentlemen before them have appealed to 
faith until the accumulation of evidence 
against it resulted in its sudden over- 
throw. Faith was dissolved into nothing- 
ness. 

There never has been a solvent bank. 
It is the normal condition of banks to be 
insolvent. 

The insolvency of the banks involves 
the social insolvency. The latter refers 
not merely to the public debts, now so 
great, nor even merely to the entire class 
of negotiable titles to revenue, such as 
bonds and stocks, nor even all money 
obligations — it includes the impossibility 
of paying for raw materials or wages. 
The gradual undermining and sudden 
collapse of the whole world's banks de- 
stroys the great bulk of the money so in- 
dispensable under capitalism. Only the 
bulk? Is it thinkable for a moment that 
when production is paralyzed, and before 



THE SOCIAL INSOLVENCY 69 



it can be resumed on a completely social 
basis — the only basis then possible — that 
the necessaries of life will be at the ex- 
clusive disposal of those who happen to 
be so fortunate as to have some pocket 
money? Of course not. Gold and tokens 
will be outlawed instantly. The hour of 
money has struck. 

All this must be clear to anybody who 
gives the subject any serious attention. 
That any self-contradictory system must 
come to grief some time is obvious 
enough. But the great rabble among the 
capitalists think the game can go on "for- 
ever," so far as the present generation is 
concerned. All that is necessary is "con- 
fidence"— such a trifling and cheap thing. 
It is the task of Socialist economics (and 
since Marx that is strictly equivalent to 
scientific economics) to discover the proc- 
esses which must bring the durability of 
the contradictory monetary mechanism 
within certain conceivable limits of time 
in spite of faith or "confidence." There 
must be processes which mechanically 
destroy this faith and vindicate the 
materialistic conception of history. 

We know that the primary trouble 



70 THE COLLAPSE OF CAPITALISM 

arises from the scarcity of gold, which 
has become insufficient in our time to 
perform its function of means of circula- 
tion and necessitated the use of imaginary 
money. Here we touch the original and 
mortal contradiction inherent in money, 
which has disclosed itself since Marx. 

Suppose that some day a new source 
of supply of gold were discovered, making 
it possible to redeem all the world's 
tokens and bank deposits. This is by no 
means an impossible supposition, espe- 
cially in view of the long lease of life 
vouchsafed to capitalism by the econom- 
ics of half a century ago. Today the 
happening of such an event would be the 
death stroke of capitalism. Gold would 
then be capable of fulfilling its function 
of means of circulation, but unable to 
function as measure of value, which func- 
tion abhors abundance. Such a flood of 
gold could only be the result of an enor- 
mously cheapened cost of production, and 
the effect of the low value of gold upon 
capitalism would be exactly the same as 
that brought about by the collapse of the 
banks. Money would be destroyed in 
either case. 



THE SOCIAL INSOLVENCY 71 



But the present dilemma is not the 
overabundance, but the scarcity of gold 
and the necessity of making up the defi- 
ciency with symbols of and titles to gold. 

These contrivances do not have the 
effect of lowering the value of gold, as its 
overabundance would. On the other 
hand, the substitutes for gold are subject 
to depreciation, as we have seen in a pre- 
vious chapter. This refers directly only 
to paper money. But, inasmuch as de- 
posits, which legally are debts like any 
others, may be paid with legal tender 
tokens, any depreciation of these affects 
the value of the deposits to exactly the 
same degree. Therefore, the depreciation 
of European currencies referred to previ- 
ously includes at the same time a corre- 
sponding diminution of the value of the 
bank deposits. 

The problem of the breakdown of money 
of account within a conceivable length of 
time thus reduces itself to a search for 
factors tending to bring about the pro- 
gressive depreciation of paper money in 
the countries with a developed banking 
system. Meanwhile we leave the depos- 
itors in the undisturbed possession of 



72 THE COLLAPSE OF CAPITALISM 

their faith, although it would not be sur- 
prising if this were rudely shaken at any 
moment. 

It is plain from the start that the prin- 
cipal cause which brought about the 
introduction of paper money, namely, the 
inadequacy of the gold supply for han- 
dling the increasing value of the stock of 
commodities, must also continue to bring 
about an evergrowing amount of that 
paper money, becoming ever more dis- 
proportionate to the slowly growing stock 
of gold. 

Such, however, is only the general 
analogy of cause and effect between the 
early years of paper money and now. But 
one important difference has arisen. For- 
merly the paper money was simply an 
addition to the gold in circulation; but 
now money is needed, not only for circu- 
lation, but equally to repose in bank 
vaults as reserve against the new fangled 
money of account. It is true, of course, 
that on the other hand circulation is now 
helped out by checks. If these did not 
render aid, the amount of tokens would 
have to be that much larger. The latter 
would be exposed to the danger of depre- 



THE SOCIAL INSOLVENCY 73 

ciation in case of shrinkage of the value 
or price of the commodities to be circu- 
lated. In 1908, for instance, the money 
turnover in this country was 30 per cent 
less than in 1906. 

It is a noteworthy fact that prior to 
the establishment of the federal reserve 
the American people left generally nearly 
half of their money in banks. For the 
latter that was equivalent to an accumu- 
lation of the daily cash deposits of 29 
consecutive days without any with- 
drawals. In other words, the bank "re- 
serves" could be considered formally as 
the initial cash receipts for 29 days, after 
which the daily receipts are balanced by 
the daily disbursements. The earlier de- 
positors may be formally considered as 
beginning to draw as much cash as the 
later ones deposit. Of course, the money 
has to stay in the bank for some time, 
namely, the difference of time between 
the average "banking" of the wages of a 
theoretical common wage period and the 
withdrawing again of the money for 
another national payroll. 

The common wage period is estimated 
by Irving Fisher, as quoted and ac- 



74 THE COLLAPSE OF CAPITALISM 

cepted in a report of the Aldrich Monetary 
Commission, at 20 days. Therefore, the 
wages are spent and "banked" on an 
average in 10 days. That leaves 10 
days for the money to stay in the banks 
before the next pay day comes around. 
But it is necessary to draw the money the 
day before pay day in order to prepare 
the payroll. Consequently, nine days is 
all the time that the money has to stay 
in the banks in the regular course of cir- 
culation, instead of 29 days. This shows 
that, so far as the active circulation is 
concerned, there was no technical neces- 
sity of there being then left in the custody 
of the banks more than $500,000,000 cash, 
instead of the $1,500,000,000 they had. 
Evidently there existed a billion more 
tokens than circulation needed. Against 
this excess we find an issue of notes of 
national banks, clearly made for no other 
purpose than to provide additional re- 
serves against the growing deposits. 
For although, naturally, the banks cannot 
print notes, exchange them with each 
other and then claim that they have more 
money than before, singly or as a system, 
they can pass them off to the public, col- 



THE SOCIAL INSOLVENCY 75 

lecting and retaining instead the gold 
certificates (which are storage receipts 
for actual gold) and other legal tenders 
theretofore in general circulation. 

Nevertheless, the time had not yet come 
for the token to depreciate, because there 
still was a preponderance of gold over 
tokens, and some gold had, therefore, to 
be in circulation all the time. That stead- 
ies the values of the tokens. But the ten- 
dency to their depreciation is irresistible. 
Production expands more or less steadily. 
Sometimes it is intensive; prices of com- 
modities rise, as do those of land and secu- 
rities. More currency is needed for wages 
and general spending. Depositors draw 
more from the banks. The so-called "re- 
serves" shrink, which is only another 
way of saying that the depositors, instead 
of leaving their money in the banks 29 
days, leave it only 28, 27, etc., days. In 
still another way this can be expressed 
as the increasing rapidity of the circula- 
tion of money until a point is reached 
when money is doing its maximum of 
work. Then the issue of more paper 
money becomes imperative. 

The foregoing can be illustrated by 



76 THE COLLAPSE OF CAPITALISM 

the relative increase from 1898 to 1914 of 
the money in active circulation (prac- 
tically wages) and of the money in banks 
as reserves against deposits (which are 
in the long run all profit). The former 
was 54 per cent, the latter 137 per cent. 

This would be all very fine for capital- 
ism, if the thing did not run up against 
a stone wall beyond which it cannot go. 
The paper depreciates. It is in our time 
no longer issued by the governments of 
the leading capitalist countries, save 
under very exceptional circumstances, 
but by semi-governmental institutions, 
called national banks in Europe and the 
Federal Reserve Bank here. They are 
central banks for the individual banks 
whose reserves they hold. It is a unified 
system of banking for each country. 

Can two banks print bank notes, each 
for a million, exchange them with each 
other, and then claim that they now have 
jointly two millions more money than 
before ? Hardly ; and no more can a whole 
national system perform a similar trick. 
What the banks can do is to pass their 
notes to depositors willing to take them 
and retain as money reserves all the gold 



THE SOCIAL INSOLVENCY 77 

coming their way. But in due time they 
strike a snag. When the channels of cir- 
culation are filled with notes to the entire 
exclusion of gold then, in the event of 
business depression or the necessity of 
gold shipments, depreciation knocks at 
the door, unless the banks give up gold 
and keep their notes, which latter, of 
course, cannot count as reserves at all. 
This alternative, either of opening the 
door to depreciation by clinging to the 
gold or of reducing their legal or volun- 
tary reserves, will present itself to the 
banks again and again, and must end 
with the confessed insolvency of all the 
banks and the destruction of money. 

To avoid the clearly dangerous aug- 
mentation of paper money, why could 
not capitalist society restrict the circu- 
lating medium so that each unit of gold, 
or its symbol, can buy a greater com- 
modity value, thus counteracting the 
increase of the total value of the stock 
of commodities as expressed in gold, or 
preventing any continued tendency of 
prices to rise? 

Such an idea implies the overvaluation 
of gold and would have to overcome the 



78 THE COLLAPSE OF CAPITALISM 

desperate resistance of the debtor class, 
less interested than the creditor class in 
the maintenance of capitalism. The idea, 
further, would have to be reconciled with 
the prospect of the concentration of an 
inordinate and constantly growing share 
of the world's wealth in the hands of the 
owners of gold mines. But far more im- 
portant than these considerations is the 
fact that the circulation requirement, 
though it thus may be impeded, cannot 
be permanently confined. The restriction 
of the issue of paper money to a perma- 
nent proportion with the gold is incom- 
patible with capitalism, whose expansion 
is irresistible as a result of competition. 
In time it would become impossible to 
circulate such commodities as are below 
a certain minimum of value. At the same 
time bank deposits would continue to 
grow from the inevitable profit accumu- 
lation. Instead of receiving additional 
cash for their reserves, the banks would 
see them practically exhausted. Reach- 
ing that p@int does not exhaust the de- 
mands for money by the depositors whose 
needs are imperative. Contraction is not 
workable for any length of time. 



THE SOCIAL INSOLVENCY 79 



A longer lease of life for the things that 
are is promised by permitting inflation, 
as the need of it arises. Inflation, there- 
fore, it shall be. However, a merely tran- 
sitional form of society cannot be made 
permanent by following one policy any 
more than another. As all roads lead to 
Rome, inflation leads in the end to exactly 
the same point as contraction — to the 
social insolvency. 

For a shrinkage in the value of paper 
money (and, therefore, of money of ac- 
count) cannot be made good by printing 
more paper money. No matter how 
much is printed, the value of the sum of 
the tokens is not increased one iota, while 
the value of each unit is diminished. 
Overwhelming necessity has, neverthe- 
less, compelled Europe since the war to 
have recourse to this ruinous proceeding 
on an immense scale, considering the 
shortness of the period. Yet the same 
thing was bound to happen, though, no 
doubt, more gradually, in the perfectly 
normal course of monetary development. 

As the depreciation progresses the 
amount of the daily deposits of paper 
money increases. The passage of this 



80 THE COLLAPSE OF CAPITALISM 

money through the banks accelerates the 
growth of money of account. The swell- 
ing of the deposits calls for a relative in- 
crease of the reserves. But the additional 
reserves cannot come from the increased 
deposits of the depreciated money. Under 
the regime of gold, when this is the 
measure of value, the total price of the 
commodities in circulation calls only for 
a definite maximum of money. Any ex- 
isting surplus of gold or symbols thereof 
find lodgment in bank vaults, and can 
stay there for an indefinite time. 

But it is otherwise under the regime of 
depreciated paper. The issue of tokens 
has been called forth by the needs of 
circulation, but once they are issued in 
excess of the economic law, they will not 
retire to bank vaults longer than tech- 
nically necessary. Their aggregate value 
is determined by the aggregate value of 
the commodities in circulation ; therefore, 
all the units of the token issue are at all 
times needed in circulation. Granting 
that the gold basis has been frankly 
abandoned, and that the banks consider 
their own notes, or promises to pay (but 
pay with what?) as money, it is, never- 



THE SOCIAL INSOLVENCY 81 

theless, plain that the gain of reserves by 
the banks must be small relatively to the 
growth of deposits. 

On the other hand, the strain on the 
banks becomes more severe constantly. 
While the reserves grow little, the de- 
posits grow much, and, naturally, cause a 
growing demand on the banks for cash. 
How are these to meet the situation? 
There are two ways. 

One is to pass new paper money out 
of the paying teller's window. This in- 
creases prices, which necessitates the 
issue of still more paper. It is now the 
method adopted by Europe in grandiose 
style since the war. But it is a vicious 
circle, from which there is no escape until 
the value of money is destroyed in due 
course of the process, or this process is 
ended deliberately by the dethronement 
of money and the establishment of com- 
plete Socialism. 

The other way is for the banks to re- 
duce their loans and thereby their 
"deposits." This is, likewise, a road of 
thorns. It is clear that if tokens have 
depreciated, say 50 per cent, the borrow- 
ing world needs to double its borrowings 



82 THE COLLAPSE OF CAPITALISM 

to continue the industries on the estab- 
lished scale. On the contrary, it now has 
to face the withdrawal of the loans. To 
the extent that productive and mercantile 
capitalists can manage to pay off their 
bank debts they must reduce their opera- 
tions. By this reduction of money capital 
alone, aside from other difficulties, great 
numbers of workers are forced into idle- 
ness. 

But many other industrial capitalists 
are too involved to pay up. Their entire 
business is founded on the expectation of 
material support by bank loans. Already 
the rising prices strain their capital. 
Many failures of industrial capitalists of 
this caliber would add greatly to the 
already existing unemployment. But, 
what is much more important in eco- 
nomics, these failures would go close to 
the heart of many banks, perhaps of all. 
Many banks have outstanding loans to 
the tune of 10 or more times their capital 
and surplus (one very large bank in Eng- 
land even 20 times), so that the loss of 10 
per cent and even less of their outstand- 
ings loans would wipe out both their 
capital and surplus and destroy the 



THE SOCIAL INSOLVENCY 



83 



"solvency" of such banks. A loss of 25 
per cent would strike fatally all banks. In 
stating these percentages I leave out of 
consideration that banks are heavy cred- 
itors of each other, and as such creditors 
may be involved also in losses through 
the failure of other banks. 

This book does not concern itself 
with states of mind which may be pro- 
duced by changing conditions. I am 
well aware of the possibility that loss of 
faith in the social solvency may become 
epidemic and result in an universal as- 
sault on the banks, or that the workers 
may be fired to revolutionary action 
through their sufferings. My object, how- 
ever, has been to show the trend of recent 
economic development, of which social 
bankruptcy, followed by complete Social- 
ism, is the inevitable outcome, regardless 
of states of mind. In our discussions we 
have come across several phenomena 
which show that the process is well under 
way. How near we may be to the catas- 
trophe will be the subject of the next 
chapter. 



CHAPTER VI. 



The Money Source for the War Loans. 

THE New York Times of August 3, 
1917, contained the following special 
cable from London : 

New Europe, a weekly publication possessing 
special sources of continental information 
. says: "We learn from an unimpeach- 
able source that a secret conference of inter- 
national financiers, which recently took place 
in Switzerland, was inspired by somewhat dif- 
ferent motives from those which were ascribed 
to it at the time. Acting purely in the interests 
of the great capitalists of all countries, it 
aimed, above all, at an immediate peace, such 
as would arrest the growth of international 
Socialism and the rising tide of revolution 
throughout Europe. The gathering sought to 
forestall the holding of the Stockholm confer- 
ence by a direct arrangement between the 
belligerents in which national claims would 
be entirely subordinated to consideration of 
world-wide finance." 

And so it is the international financiers 
who, of all capitalistic elements, are the 
first to perceive the necessity of attempt- 
ing to call off the dogs of war. Since 
when have these gentry become distin- 
guished as having the clearest vision of 
the menace of international Socialism? 



MONEY SOURCE FOR WAR LOANS 85 

Before the war there was no set of men 
more incapable of comprehending the 
economic trend, except, perhaps, the pro- 
fessors of political economy. Socialism 
was beneath their notice — too absurd to 
give a minute of tReir time to. And now, 
instead of delegating their trained poli- 
ticians or other retainers, they must meet 
personally for consultation, lest in fight- 
ing for "national claims" all of "world- 
wide finance" become engulfed in one 
whirlpool. 

Now, why have the international finan- 
ciers become afraid of the approach of 
international Socialism? What do they 
see? 

Immediately there comes to the mind 
of most people the immensity of the war 
debts and the oft expressed, though un- 
proved, idea that the interest cannot be 
paid; wherefore the conclusion is near 
at hand that what the financiers dread is 
repudiation. Now, repudiation may be 
partial or complete. The rate of interest 
might possibly be reduced from 5 to 4 
per cent or be. cut in half, reducing the 
selling value of the bonds proportionately. 
But that complete repudiation should be 



86 THE COLLAPSE OF CAPITALISM 



necessary is fanciful, to say the least. 
Even if repudiation became necessary, but 
involved nothing more than depriving 
private bondholders of part, or even the 
whole, of the revenue which they had 
purchased, it would be hard to explain 
why this must necessarily result in inter- 
national Socialism. In fact, as the case 
stands today, there is no reason why the 
interest cannot be paid in full, as agreed. 
It is as easy to pay five billions annually 
with money depreciated 50 per cent as it 
would have been to pay half that sum 
with the money of full value of pre-war 
time. Looking at the matter in this light, 
it still remains true that the former load 
of interest of one billion dollars has been 
increased by an additional two and a half 
billions. But this addition might be made 
good, in the main, by reducing the mili- 
tary budgets currently reported to have 
stood at two billions before the war. 
That this might be done is a reasonable 
supposition, as the countries of Europe 
will be too exhausted for many years to 
contemplate and prepare for another 
physical trial of conclusions. Also, higher 
taxation than before the war might be 



MONEY SOURCE FOR WAR LOANS 87 

resorted to. Although the capitalists 
grumbled much then, as a matter of 
course, their eyes have since been opened 
wide as to what taxation might really 
mean. Great Britain, alone, during the 
fiscal year ended March 31, 1917, raised 
by taxation two and a half billion dollars, 
figuring the British pound as being worth 
about par, which, however, is undoubt- 
edly far from being the fact, in spite of 
the artificial rate of exchange. 

If the international financiers perceive 
danger to the existing form of society 
from continued war borrowings, why do 
they not pass the word along quietly to 
the ordinary banks that repudiation must 
come, and that it were better to strike 
against further loans? Is it only because 
these gentlemen know that the banks are 
between the devil of coercion above and 
the deep sea of bankruptcy below, so that 
nothing can save the whole of finance 
and capitalist society except the im- 
mediate cessation of the war? To bring 
the latter about is the aim of the interna- 
tional financiers, strangely coinciding 
with the purpose of the Stockholm con- 
ference of international Socialists, their 



88 THE COLLAPSE OF CAPITALISM 

enemies. But this tremendous and sacri- 
ficial world war will not pass into history 
as having been in vain. It is to be re- 
corded as the deliverer of Socialism out 
of the womb of the old society, and will 
not stop its work until its purpose is ful- 
filled. Capitalism had reached the stage 
in its development where it needed this 
war, and by this war it shall die. 

In truth, the war, and the war loans on 
which it feeds, may go on for some time 
yet, so far as the final necessity of the 
mere repudiation of the debts is con- 
cerned, provided the depreciation of the 
currencies continues in proportion to the 
increase of the debts. The interest always 
will be payable in money of lesser value 
than that with which the loan was paid. 
It is not the loans in themselves which 
constitute the danger of capitalism, but 
the abnormal impetus which they give 
to the otherwise perfectly normal eco- 
nomic process that results in the destruc- 
tion of money. That is what the inter- 
national financiers are scenting. 

Let us now proceed to take a close view 
of the destructive process as it is being 
furthered by the war. 



MONEY SOURCE FOR WAR LOANS 89 

The first question is: Where did the 
$90,000,000,000 which ostensibly could be 
spared for investment in war bonds come 
from? The sum taxes our power of con- 
ception. 

At the beginning of the war the opinion 
was widely expressed by financiers and 
their clerks, the political economists, that 
it hardly could last as long as six months, 
owing to the probable immense cost, 
which would exceed the available re- 
sources in money. As long ago as June, 
1915, the National City Bank's circular, 
estimating that a year of war would re- 
quire the raising of $15,000,000,000, stated 
that that could only be done by "pyramid- 
ing credit," that is, by piling credits on 
substrata of other credits. Now the war 
has gone on three times as long as that 
contemplated by the bank, and the loans 
are even six times as large as that esti- 
mate. 

Such financing was entirely beyond the 
conception of the experts. They were 
thinking within the traditional rules of 
fairly conservative banking, and they be- 
lieved that, when the ordinary financial 
limits were reached, the war would have 



90 THE COLLAPSE OF CAPITALISM 



to stop. Little did they dream that the 
financiers and the whole ruling class 
would lose control of the war and be 
controlled by it; that the physical form 
of competition would reach that desperate 
stage where the only conceivable hope of 
survival as capitalist nations was bound 
up with the undoing of the adversary ; that 
it would drag their society, as the devil 
does the poor soul, into perdition. 

When we come to answer this question 
of the loan funds, let us first dispose of 
the supposition that it may have been to 
a considerable extent current money, the 
identical pieces of coin or paper having 
been used over and over. Inasmuch as 
the loans were payable in installments, 
it might be imagined that the money paid 
to the governments on one installment 
would return into circulation as wages, 
etc., and become available for the next 
installment. However, we glean from 
figures published by the German gov- 
ernment, the only one which has done 
so, that 1,794,084 subscribers took 154,- 
000,000 of marks, while 725 subscribers 
took 2,448,000,000 millions of the fifth 
loan. In England, where the per capita 



MONEY SOURCE FOR WAR LOANS 91 

circulation is much smaller than in Ger- 
many, and the middle class nonexistent, 
the small payments with actual currency 
must have been almost a nullity. In short, 
the loans were not paid in current money, 
and the participation in them by the 
workers and middle class (mostly peas- 
ants) is negligible, so far as amount is 
concerned. 

We may, therefore, now proceed to 
inquire whether the loans were paid out 
of the profit-originated money of account. 

For several years up to the war the 
annual capitalization in London, Paris 
and Berlin was about three billion dollars. 
That is to say, that, after part of the 
annual profit above living expenses of 
the capitalists and their retainers — sol- 
diers, lawyers, professors, etc. — had been 
used to extend their businesses, the 
aforementioned sum remained as a bal- 
ance in money form available for tem- 
porary investment in new issues of 
securities. Upon the outbreak of the war 
private issues were prohibited in order 
to monopolize the money markets for 
government issues. Thus there became 
available for the latter during the three 



92 THE COLLAPSE OF CAPITALISM 

years of war nine billion dollars. To this 
may be added two billions of merchants' 
capital laid idle in domestic and foreign 
commerce, owing to the direct control by 
the governments of more than half of the 
industrial production and to the blockade 
of Germany, but offset to quite an extent 
by the additional capital called for by 
the advance of as much as 1,000 per cent 
in the cost of ships, etc. 

Thus we find eleven billion dollars to 
be all the visible money available for war 
loans. It was probably on some such 
calculation that financial authorities 
based their prediction already referred to 
that the war could scarcely last six 
months. Yet loans of eight times as much 
have been paid, and we are consequently 
not much nearer an answer to our ques- 
tion: Where did the money come from? 

"But wait !" I hear some Socialist glibly 
interject, "you forget the outrageous war 
profits/' 

What has attracted our Comrade's at- 
tention and confused him is the profit of 
our American capitalists, who really have 
something tangible to show — billions in 
gold and American securities formerly 



MONEY SOURCE FOR WAR LOANS 93 

owned in Europe and now transferred to 
them. The American capitalists grew 
richer, but the European poorer to the 
extent that their own governments' obli- 
gations were worth less than gold or 
American securities. Besides the latter 
had been a source of unadulterated rev- 
enue, whereas the money for the payment 
of interest and the redemption of the prin- 
cipal of the war bonds which the Euro- 
pean capitalists got in exchange has to 
come out of their own profits in the shape 
of taxes. 

The vaunted "war profits" of the Euro- 
pean capitalists cannot have added mate- 
rially to the amount of money available 
for the war loans placed by the belligerent 
governments in their respective countries. 
Let us take a look at these so-called war 
profits. 

When a productive capitalist turns out 
a quantity of a divisible product, one part 
of this may be considered to represent 
the value of the material consumed, and 
another part the new value added by 
labor. This new value is divided between 
those who produced it and the capitalists. 
The latter's share is called surplus value 



94 THE COLLAPSE OF CAPITALISM 

or profit, according to certain relations. 
The worker receives his share in the 
shape of a quantity of products necessary 
to keep him going, or rather of the money 
to buy them himself. 

What matters to the capitalist class is 
the quantity (or rather, value) of the 
products which it can appropriate to it- 
self. The more active the process of pro- 
duction is, the more the workers can be 
made to work, the greater the value of 
the products going to the capitalists, both 
absolutely and relatively, the latter owing 
to the comparatively lesser increase of 
general expenses. The money derived 
from such real profits is a source for war 
loans. 

In ordinary times goods are universally 
exchanged with each other on the basis 
of their comparative values, as measured 
by the cost of producing gold. But now 
there is abroad a spendthrift buyer, pay- 
ing, not with money, but by running into 
debt, having no commodities to sell. He 
cares not about price, and what he buys 
he destroys promptly. 

When demand is thus active, outrun- 
ning production, prices advance, and the 



MONEY SOURCE FOR WAR LOANS 95 



more so, if production centers mainly on 
useless things, such as cannons. The pro- 
gressive rise of prices enables the pro- 
ductive capitalists to make an additional 
gain. But this gain is illusory for the 
capitalist class considered as a whole and 
therefore not available for war loans. 

Price fluctuations are the ever renewed 
capitalistic attempt to adjust the division 
of the product between the owners of 
money and the owners of commodities, 
incidentally regulating wages. These fluc- 
tuations do not affect the mass (or rather, 
value) of the product which goes to the 
capitalists. To express its total in ever 
so high a price, does not make it more. 
Every money unit of profit can only buy 
so much less. Among the individual cap- 
italists the gain of one, procured by rising 
prices, must be the loss of another, not 
necessarily at the same time, as in the 
case of the money capitalist receiving a 
fixed rate of interest, but at a later time, 
when the market moves downward. The 
gains and losses, not being profit, or the 
result of labor performed, must offset 
each other. 

If the illusory gains (they are so largely 



96 THE COLLAPSE OF CAPITALISM 

also for other reasons to be mentioned 
presently) are nevertheless invested by 
some capitalists in war loans, they de- 
prive the capitalist class as a whole of 
the means of meeting the losses when 
they come. The severity of the resultant 
crisis is the measure of retribution which 
an anarchic form of society must suffer 
for its imperfection. 

But suppose that for the first time in 
economic history there comes no falling 
market after the war. Then there are 
only two possibilities which could explain 
such a phenomenon. Either gold has 
undergone a sudden and permanent de- 
cline of value, or price is expressed by 
depreciated paper money. The first men- 
tioned explanation is quite gratuitous, as 
the cost of producing gold has actually 
risen since the war. What depreciation 
means to our present social order we need 
not repeat here. 

American capitalists may gain billions 
by price advances, but foreign capitalists 
must lose correspondingly, either at once 
or later. The capitalist class as a whole 
cannot gain by price advances. If the 
European capitalists have, as many think, 



MONEY SOURCE FOR WAR LOANS 97 

been able to gouge their governments, 
the latter must exact the return in due 
time of every penny by the taxes neces- 
sary to pay off their debts and the in- 
terest thereon. The capitalist class cannot 
add to its profit by gouging. It cannot 
exact anything from society but the reg- 
ular surplus product. 

Supposing the productive capitalists to 
have been able, after the outbreak of the 
war, to take advantage of the other ele- 
ments of society, would not the latter 
have so much less money to invest in 
war loans, as the former had more? 

Before the governments had been able 
to replace capitalist anarchy by their 
centralized control of the industries, the 
productive capitalists exacted exorbitant 
prices from the reckless, debt-making 
governments. But these extra gains, 
which would have become illusory, any- 
how, in the course of time, as above ex- 
plained, were promptly reclaimed by the 
governments in the shape of war taxes. 
The British government has raised the 
taxation from 815 million dollars in the 
last year of peace to 2,570 million dollars 
for the fiscal year ending March 31, 



98 THE COLLAPSE OF CAPITALISM 

1917. The German industrial organization 
permitted of speedy regulation of war 
production and prices. 

There was another source of vaunted 
"war profits" which, however, in reality 
is only a delusion. Concerns showed un- 
precedented increases of surplus on their 
balance sheets, but these extraordinary 
profits reflected depreciated money. This 
depreciation was the inevitable result of 
the inevitable inflation of the paper 
money circulation in every warring coun- 
try. The issues in the course of the war 
have been multiplied six to twelve fold 
in different countries. The reader knows 
from the theory of tokens of money pre- 
sented in a previous chapter that such in- 
flation results in higher prices. After 
having sold at the advancing prices, the 
capitalist is obliged to enter the market 
again as a buyer, and in his turn pay the 
highest price. He finds that his swollen 
purse can buy no more than his former 
more modest one. If he has indulged him- 
self personally with the increase of his 
cash, or if he has invested it in war loans, 
he will find that he cannot continue pro- 
duction on the former scale. But, no mat- 



MONEY SOURCE FOR WAR LOANS 99 

ter what the individual capitalist might 
do, the finale would be the same. Money 
has depreciated 50 per cent, and unprece- 
dented increases of surplus appear on the 
books of accounts — great war prosperity ! 
Money further depreciates 95 per cent, 
and every little capitalist has become a 
millionaire. The depreciation reaches 99 
per cent, and — a yawning abyss opens 
before the eye. The illusion that there 
can be prosperity as the result of a wan- 
ton destruction of the fruit of labor has 
vanished. 

The only conclusion, therefore, is that, 
while a certain amount of additional 
profits from intensive production during 
the war, minus the increase in taxation, 
may have been a contributory source of 
money supply for the war loans, the 
legitimate profit-originated money of ac- 
count cannot have furnished the where- 
withal to a large extent. 

And in so far as the profit-originated 
money of account has been inflated by the 
mere rise of prices, this source of money 
has undoubtedly been used to a more con- 
siderable extent. But it is not properly 
applicable to the purpose and, therefore, 



100 THE COLLAPSE OF CAPITALISM 

as previously explained, a source of peril 
for the financial mechanism soon after the 
war. 

We have now completed our investiga- 
tion with the result that bank-made credit 
money stands revealed as the main finan- 
cier of the war together with the equally 
fictitious accretion to the profit-originated 
money of account due to rising prices. 
How this financing was accomplished will 
be told in the next chapter, in which will 
also be considered the final effects of this 
financing on the condition of the banks 
and of capitalist society. 



CHAPTER VII. 



The War, Birth Deliverer of Socialism. 

THERE are two ways which the banks 
may consider for financing war by 
means of bank-made credit money. 

One is by direct subscription to the 
war loans for their own account; the 
other is by making the necessary loans 
to depositors willing to subscribe. 

The former was adopted by the banks 
at the beginning of the war, when the 
general opinion among bankers was that 
the war would necessarily be short owing 
to exhaustion of the money supply. The 
latter way was the one followed later 
to procure the great bulk of the borrow- 
ings of the governments, when the dis- 
illusionment regarding the possible dura- 
tion of the war began to spread. 

What is the difference between the two 
methods in their effects on the situation 
of the banks? 

In lending to the government, the bank 
accepts a long term obligation. The re- 
turn of the principal cannot be had except 
101 



102 THE COLLAPSE OF CAPITALISM 

by sale of the bonds at whatever may be 
the stock exchange quotation at the time 
the bank wants to sell. The banks can- 
not go very far in long time investments, 
remembering well that in panics, just 
the time when money is wanted, it had 
become impossible to sell at almost any 
price. 

In lending to depositors the bank gets 
their reasonably short obligations, usually 
divided into what appear as manageable 
instalments. The bank, furthermore, 
promises renewals in case of necessity, 
although such promises are made in a 
form not legally binding on the bank. In 
this way the bank counts on a fairly reg- 
ular inflow of money, instead of being 
tied up with long term investments. In 
the latter condition, banks are apt to be 
heavily drawn on, with but little coming 
in, and the balance must be made good 
at the clearing house with actual cash or 
at the central bank with whatever may 
be satisfactory to it. The war bonds 
themselves are taken by the banks as 
collateral security. 

But there is another difference nor- 
mally, even more important. 



WAR. BIRTH DELIVERER 103 

The borrowed money is disbursed by 
the government principally by issuing 
checks to the productive capitalists who 
deposit them in their banks. The bank 
deposits, or the banks' liabilities payable 
on demand, are thus swelled. This is, of 
course, true in either case, whether the 
government funds are obtained direct 
from the bank or from private investors. 
But for the banks, there is this all-im- 
portant difference that, if they have ad- 
vanced the money direct, the deposits will 
stay swelled, with all the attendant dan- 
gers of increasing and perhaps sudden 
demands by the depositors for cash; 
whereas, if the banks advanced the money 
to subscribers, the swelling of the deposit 
accounts of the industrial capitalists is 
accompanied by the reduction of the de- 
posit accounts of the holders of bonds, as 
the money borrowed by them is being 
paid off. 

How the banks could advance the 
fabulous sums for the war is no longer a 
mystery to the attentive reader of the 
analysis of bank-made credit money in a 
previous chapter. If the banks had turned 
over their cash to the government, there 



104 THE COLLAPSE OF CAPITALISM 

would at no moment have been any in- 
crease whatever of the money of account ; 
or. if the banks had discounted com- 
mercial paper at the central banks for 
the purpose, the increase would only 
have been quite temporary. Also with 
such simple methods the banks' financing 
of the war would soon have reached its 
end. The trick is how to pay unlimited 
amounts without paying a penny. Bank- 
made credit money had long solved this 
problem. The private subscriptions were 
collected by the banks which transmitted 
them to the government with authoriza- 
tion to issue demand drafts on them for 
the aggregate. These drafts, in due 
course, were deposited by the productive, 
capitalists and cleared against each other 
in the approved system of money of 
account. 

Can billions upon billions of dollars' 
worth of labor products be taken out into 
the open and blown up, without costing 
anybody anything, owing to an ingenious 
financial system? Is there no day of 
reckoning coming? It seems hardly 
necessary to pause here and consider. 

That much was clear to the govern- 



WAR, BIRTH DELIVERER 105 

ments and the leading banks that it was 
of the utmost importance to induce the 
general investors to subscribe. To raise 
the "Victory Loan" in England last 
spring a campaign was set on foot such 
as had never been seen in that country 
for any purpose. In due time the world 
was informed that the "Victory Loan" 
had been a great victory. However, it 
will be instructive to take a little closer 
look at it. 

This 5 per cent loan was issued at 95 ; 
that is, the government gave its obliga- 
tion for £100 on payment of only £95. 
The banks mutually agreed to lend the 
depositors £90. All the subscriber had 
to put up was £5. Accordingly, he collects 
from the government interest on the 
obligation of £100, or £5, and he pays to 
the bank 5 per cent on £90, or £4%. His 
own contribution of £5 yields him . the 
difference between the £5 he receives and 
the 4y 2 he has to pay, or £%, which is 
10 per cent. The banks allow this ad- 
vantage to the investors with an eye to 
the pressure which they may exert here- 
after on their debtors so that these may 



106 THE COLLAPSE OF CAPITALISM 

reduce their deposits by paying up their 
matured instalments. 

Here, then, is a loan in which the banks 
have not directly invested at all, but 
which was paid, all but 5 per cent, with 
bank-made credit money. 

The savings banks of Germany have 
subscribed to war loans in excess of the 
amount of their deposits, although these 
were already supposed to be invested. 
The reader may well be pardoned if he 
considers this statement as absurd. Still, 
the fact is that the savings banks pledged 
their investments to the War Loan Banks, 
receiving 75 per cent in cash for invest- 
ment in the impending loan. When the 
next loan came around they similarly 
pledged their 75 marks in war bonds for 
another loan of 75 per cent of the value 
of these; that is, 56^4 marks, etc. The 
war loan banks, which are in reality 
nothing but unofficial appendages of the 
Imperial Bank, do not admit having had 
outstanding at any time more than 4,000 
million marks in notes. These banks, as 
well as any other banks in Germany and 
in the other belligerent countries, may 
prevaricate, dress their windows for 



WAR, BIRTH DELIVERER 107 

special dates, or suspend publication of 
reports, but they cannot conceal the gen- 
eral facts as to the condition they are in 
as a whole. 

The expansion of deposits precedes 
and calls forth the inflation of the token 
currency. This is doomed to depreciation. 
Only England (and to a lesser degree her 
protege, France) has only indirectly 
(through depreciation of the dollar in 
neutral countries) to acknowledge such 
depreciation as a consequence of the war. 
This is due to England's shipments of 
gold to the United States, to the inhibi- 
tion of such shipments to other countries, 
the reduction of her gold reserve to a 
minimum, the sacrifice of her best securi- 
ties, the assistance of the United States 
first by loans against security, and now 
by shipments of goods without payment 
and the purchase of neutral Sterling 
drafts at the gold value. As a conse- 
quence of the last mentioned assistance 
the dollar is now depreciating in the 
neutral countries, gold shipments to them 
being under embargo. Nevertheless, 
what America is doing to sustain the 
pound (and, secondarily, the franc) does 



108 THE COLLAPSE OF CAPITALISM 

not appear sufficient to the Journal des 
Debats, the distinguished French capi- 
talist mouthpiece, which, according to a 
cablegram in the New York Times of 
August 7, 1917, says that "America must 
open credits to the allies as large as may- 
be needed/' "for to refuse them would 
make a continuation of the war impos- 
sible." 

I do not pretend to have any idea how 
much strength the dollar can contribute 
to sustain the financial structure of Eng- 
land and of the world, or how soon we 
may succeed in ending the war by throw- 
ing our military power into the scale. 
Should the war last another year, the 
demand debts of the European banks will 
have increased by another 50,000 million 
dollars, the value of money will be fur- 
ther reduced, and perhaps near the van- 
ishing point, aside from spending the 
strength of the dollar in which borrow- 
ings of 18,000 million dollars are now 
contemplated for the year. A sudden 
debacle need surprise nobody ; least of 
all could it surprise the international 
financiers and the bankers. They have 
been drifting along, feeling themselves 



WAR, BIRTH DELIVERER 109 

powerless in the hand of fate. Ere long 
the banks, and with them the great mass 
of the industrial capitalists, might reach 
that frame of mind in which continued 
struggle against Socialism, for the sake 
of the little that may be saved, may not 
seem worth the anxiety, and conclude 
that they may as well surrender sooner 
as later. 

In the meantime the governments are 
making supreme, though unconscious, 
efforts to prepare the world, through 
social regulation of production and con- 
sumption, for the impending transforma- 
tion of the political form of social organ- 
ization into the industrial form. The 
political form has been adequate for in- 
dividualistic production, even when, with 
the development of capitalism, produc- 
tion took on an entirely social aspect. 
Money was the indispensable tool to 
make this evolution possible in a funda- 
mentally individualistic society. When 
society becomes an organism, conscious 
of being such, the necessity of money 
disappears at once. Or to reverse the 
statement, when the category of money 
is destroyed through the operation of 



110 THE COLLAPSE OF CAPITALISM 

some economic law, the commodity- 
producing society and its organic form, 
the political state, disappear at once, and 
Socialism, organized industrially, arises 
spontaneously. 

Such appears to be the inevitable im- 
mediate outcome of a continuation of the 
war for the comparatively short time 
necessary, at the present and steadily 
growing cost, to insure the mechanical 
collapse of capitalism. There remains for 
us now only to take a prospective of the 
condition in which capital, the controlling 
element of society, would find itself, 
should the Socialists or financiers, or any 
other group, succeed in bringing about 
immediate peace. 

In spite of deterioration of the ma- 
chinery of production and transportation 
during the war ; in spite often of scarcity 
of raw and accessory materials, and the 
withdrawal of the most efficient mental 
and manual workers from industry, the 
general productive efficiency has been 
materially heightened by centralization 
and co-ordination of effort through gov- 
ernment control. It was possible to reach 
and maintain the maximum of production 



WAR, BIRTH DELIVERER 111 

attainable under existing technical con- 
ditions, because production was carried 
on for the direct purpose of consumption 
by an insatiable and spendthrift cus- 
tomer. This maximum is not likely to 
be exceeded, or even equalled, when profit 
becomes the object of the buyer of the 
goods, when this profit must be paid out 
of current income, instead of by I. O. U.'s 
on the future. More likely will produc- 
tion decrease. 

Then will the smaller mass of com- 
modities still be confronted, and their 
price be expressed, by the existing and 
undiminished mass of tokens. Deprecia- 
tion makes another step forward, prices 
rise further. Usually the rising tendency 
of prices has induced contracts for future 
delivery of goods, and thus has inaugu- 
rated an industrial boom. But this time 
speculation is nipped in the bud by the 
extreme scarcity of loanable capital. 
Therefore, the sum of tokens now will 
suffice for peace time circulation, and 
the war time pressure on the banks, when 
the growing circulation requirement 
necessitated their constant issue of new 
notes, relaxes. 



112 THE COLLAPSE OF CAPITALISM 

But the pressure does not cease alto- 
gether. Whatever the sum of depreciated 
tokens, it always will be required for the 
circulation, allowing merely for a portion 
to remain in banks during a technically 
necessary time. The percentage of re- 
serves against the huge deposits must, 
therefore, remain perilously small, unless 
the banks are able to reduce the deposits 
materially. Now, we know that it is only 
the bank-made credit money which is 
subject to being reduced. Its cancellation 
can be effected only by means of profit- 
originated money of account. In other 
words, it takes new profit accumulation 
in money form to pay off the bank loans. 
The wastage of war cannot be made to 
count for nothing through mere financial 
hocus-pocus; the wastage must be re- 
placed by productive labor, namely, that 
part of the latter which is appropriated 
by the capitalists. 

In the three years of war bank-made 
credit money and fictitious profit-origin- 
ated money has been issued at the rate 
of nine times the ante bellum profit ac- 
cumulation in money form. That means 
that nine times three years, or 27 years, 



WAR, BIRTH DELIVERER 113 

are necessary to pay off the debts of the 
bondholders to the banks, and to cancel 
the fictitious profits (really only gains) 
by the necessary losses. This period 
might be shortened in individual cases 
by extra profits, the conversion of mer- 
chandise stocks into money and the sale 
of the securities. But none of these 
things is possible on an extensive scale, 
and nothing can shorten the average 
time. 

For, since the deposits can be dimin- 
ished only very gradually, relief to the 
banks from this direction (prompt relief 
from diminished circulation requirement 
was mentioned above) must be equally 
slow. Therefore, the banks will continue 
to remain in a precarious condition. They 
may be able to drag along for a number 
of years by resuming the issue of addi- 
tional paper money, whenever their funds 
give out, in spite of the reduced mass of 
commodities. Thus they once more enter 
the vicious circle, with little hope of ever 
escaping from it. The only possibility of 
rising out of the death swamp of depre- 
ciation lies in a rapid increase in the mass 
of commodities by a demand for them. 



114 THE COLLAPSE OF CAPITALISM 

For this, however, there exists little 
chance for many years to come for the 
following reasons: 

First — The banks cannot entertain any 
thought of adding to their outstanding 
credit money. This circumstance alone 
prevents an industrial revival. But the 
whole truth is, that there will exist prac- 
tically no loan capital of any kind. Dis- 
missing all idea of continuing the 
accustomed and, according to Marxian 
economics, necessary industrial expan- 
sion, the industrial capitalists will have 
enough trouble merely to make both ends 
meet. Their profit accumulation in money 
form, on the pre-war scale, already is 
pledged for many years for the redemp- 
tion of their bank loans. None of it can 
serve as loan capital. The merchants, 
whose capital normally relieves the pro- 
ductive capital, expect to realize on their 
investments in order to put back the 
money in its former channel. But where 
is this money to come from? 

Next, it might be suggested that more 
profit would be accumulated in money 
form by accumulating less in means of 
production. Supposing that the aggre- 



WAR, BIRTH DELIVERER 115 

gate profit equals ante bellum years, then 
this is precisely what must be done — not 
to lend wings to capitalism, but to allow 
it to walk on crutches. For out of the 
additional funds so gained, at the expense 
of industrial advancement, must be paid 
the merchants' capital, supposed to have 
been only temporarily invested, and now 
needed; the renovation of plant, the 
worse for wear and partly obsolete 
through new discoveries; and taxes, 
greatly increased compared to former 
times. 

As stated, all this is predicated on the 
former scale of profits. The prospect of 
its materialization is not, however, very 
flattering with the industrial capitalists 
expected to operate without borrowed 
money, and with 30,000,000 men back 
from the war with impaired productive 
capacity, but accustomed to liberal con- 
sumption. 

The competitive struggle will be 
sharpened. Some industrial capitalists 
are bound to progress, but more of them 
than ever before will fall by the wayside. 
The sale of the government bonds among 
their assets, together with the sale of 



116 THE COLLAPSE OF CAPITALISM 

merchants' bonds, the very high rate of 
interest which any loanable money com- 
mands — all depress the stock exchanges. 
The securities in which the banks have 
invested their own capital, shrink in 
value. Even in the spring of 1917 the loss 
of value of the securities dealt in on the 
London Stock Exchange was estimated 
at $3,500,000,000 since the beginning of 
the war. The solvency of the banks, 
nominal as we know it always to have 
been, may become a question in the minds 
of a considerable number of depositors, 
and finally bring about the universal 
"run." Instead of the long-drawn out 
agony we then would have the sudden 
collapse. 

But we seem to forget all about those 
little piles of gold which each central 
bank is guarding so jealousy. The pres- 
ent intention of the Germans, always in 
the vanguard of economic organization, 
is to hold its gold for international trade 
conducted by their government as the sole 
buying and selling agent of the produc- 
tive capitalists. There would be, for in- 
stance, one selling agent in the United 
States for German chemicals, who would 



WAR, BIRTH DELIVERER 



117 



be at the same time the buying agent of 
cotton. The transactions in chemicals 
and cotton would be made dependent on 
each other. This would compel the Amer- 
ican government to act likewise as sole 
buyer and seller. Thus another great 
step forward will be made not only to- 
ward national but toward international 
control of industries. The gold is to be 
used in cases where barter is impossible. 
Otherwise it has lost its significance. 

Many great capitalists, as well as the 
rank and file of their class, even now live 
in the illusion that nothing but the polit- 
ical class state and the ancient system of 
exploitation are thinkable. Those of one 
country believe they can be benefitted 
by victory over those of another country. 
They dream even now of empire in 
China, Africa, or wherever subjugation 
is possible. 

But in reality the long vista of capital- 
ism has vanished. The moment was 
approaching when, even in the normal 
course of its development, it was to be 
wrecked by its fundamental flaw, the 
necessity of commodity money. When 
this became insufficient the game was 



118 THE COLLAPSE OF CAPITALISM 

played with paper. This represented 
titles to the money commodity and passed 
from one to the other as being as good 
as the real thing. If the game can be 
said to rest on any theory, it is that these 
titles are not meant to be ever made good ; 
that they, must remain unredeemed in all 
eternity, and that they may reach the 
colossal figures of astronomy. For, were 
they ever redeemed, whether in gold or 
in another kind of paper, the payment 
would be worth nothing. Faith excludes 
the thought of redemption. It is for 
science to discover the forces that will, 
by compelling redemption, end the ab- 
surdity. 

Early peace offers the prospect of the 
lingering death struggle of capitalism, its 
last years attended by widespread suf- 
fering and probably intense economic and 
political perturbation. 

Continuance of the war assures the 
early and sudden downfall of capitalism 
in consequence of the worldwide failure 
of the financial mechanism. 

But, whether it be peace or more war, 
the days of the rule of gold are numbered. 
History never can overestimate the im- 



WAR, BIRTH DELIVERER 119 

portance of the part played in human 
progress by the yellow metal. It was the 
tool placed by nature into the hands of 
man for the erection of an edifice in which 
was to dwell a race emancipated from 
physical care and free to devote its mental 
gifts to the highest aims. But in all 
animate nature the evolution of lower 
to higher forms is replete with the 
tragedies of the struggle for exitence. 
The golden tool became the master of the 
workman, setting the pace for him and 
driving him pitilessly and relentlessly 
toward the completion of a task he under- 
stood not. Now the tool fails for further 
service. It is breaking in man's hand. 
But, behold! Completed is the dwelling 
in which the struggle between man and 
man shall be unknown, and in which the 
fateful gold, stripped of power, cleansed 
of blood, will be restored to its natural 
character — that of being a mere thing of 
beauty and innocent joy. 



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